Editorial comment
Heading into the 2024 winter season, the European LNG market appears to be in a precarious position, faced with supply constraints at a time when demand for new LNG liquefaction capacity has crept higher. Current predictions for the LNG market suggest that European natural gas will be highly susceptible to factors such as an unfavourable climate, ongoing geopolitical uncertainty, and disruptions in LNG supplies. With these factors having the potential to cause undesirable price fluctuations, European natural gas markets may have to prepare for a difficult winter.
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As we move into the heart of the winter period, it is evident the European’s position is more vulnerable now than it was in 2023. At the same point last year, storage levels were almost at 100% full capacity; however, heading into November 2024, these storage levels were only at 93.3%, according to Commerzbank AG.1 This is in spite of concerted efforts by European buyers to seek out alternative supplies of natural gas, a matter than has only become even more pressing and urgent with the continued conflict in Ukraine and sanctions on Russian exports. There had been some hope for a flood of new natural gas supplies globally, but announced delays from multiple sites as far afield as Golden Pass LNG in the US and Energía Costa Azul LNG in Mexico mean that on the other side of winter, LNG storage supplies may not get the capacity boost that the market hopes for heading into Spring 2025.2
Furthermore, the winter season is characterised by its biting cold and, as things stand, European natural gas usage will largely depend on the climate’s impact on supply demands. We have already seen colder temperatures than usual in November, with an arctic chill bringing in colder weather across the UK and parts of Northern Europe. A colder-than-expected winter could push prices higher. On the other hand, a mild winter could ease pressure on gas stocks, stabilising prices.3 Suffice it to say, the market is hoping for the latter rather than the former. Moreover, there has been a higher degree of usage of gas-fired power generation which has led to the first withdrawals from gas storage facilities across Europe. Fortunately, the European climate service, Copernicus, forecasts a higher probability for a mild winter, which could dampen gas demand.1
It can be difficult to feel optimistic about the future of winter LNG supplies in Europe when recent developments seem to suggest that storage infrastructure may not be able to supply enough natural gas to keep the continent warm.
Nevertheless, despite the European LNG market being faced with several challenges this winter, such as geopolitical uncertainty and an ever-changing climate, thus opening up the potential for price fluctuations and risking a more fragile market, there is still hope. Hopefully Europe is set for a milder winter that will not see the depletion of energy stores and can leave the European market in a relatively stable position heading into 2025.
References
- ‘European gas markets on the edge ahead of winter season’, Invezz, (13 November 2024), https://www.tradingview.com/news/invezz:0bdecb357094b:0-european-gas-markets-on-the-edge-ahead-of-winter-season/
- BLAKEWAY, A., LONG, S.H., YEO, C., ‘LNG buyers shape 2025 strategy amid expectations of tighter supply’, S&P Global, (15 November 2024), https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/lng/111524-lng-buyers-shape-2025-strategy-amid-expectations-of-tighter-supply
- AJAYI, O., BRYAN, W., ONYSHKIV, Y., ‘Winter 2024 European gas and LNG market outlook’, LSEG, (8 NOVEMBER 2024), https://www.lseg.com/en/insights/data-analytics/winter-2024-european-gas-and-lng-market-outlookl
