European gas prices set to fall 20% by mid-2024 amid drop in demand

Gas demand is expected to drop by 9 billion cubic metres next year, Wood Mackenzie says

A liquefied natural gas tanker docked at an importation terminal, operated by National Grid, near Rochester, UK. Bloomberg

European gas prices are set to fall 20 per cent by mid-2024 on dropping demand for power generation and high storage levels, according to Wood Mackenzie.

Factors such as storage nearing 96 per cent capacity by October's end and reduced power sector gas demand could lead to a potential price drop of $4 per million British thermal units (mmBtu) by next summer, the energy consultancy said in a report on Wednesday.

Despite current market pressures, the region’s gas sector looks set to see a fall in gas demand that will have a “knock-on effect” on prices next year, it said.

European gas prices have been trading higher due to the extensions of gasfield maintenance schedules in Norway and strikes at key Australian liquefied natural gas (LNG) fields.

Dutch Title Transfer Facility gas futures, the benchmark European contract, were trading at €36.58 ($39.15) per megawatt hour on Wednesday after falling about 55 per cent since the start of the year.

“The Norwegian maintenance schedule being extended could have had a serious impact if storage levels were not so high,” said Mauro Chavez, research director, European Gas and LNG markets at Wood Mackenzie.

“And while the strikes in Australia will ripple across the global LNG market, it is more likely they will be short-lived, limiting the implications on Asian and European market balances.”

Wood Mackenzie expects overall gas demand to drop by 2.2 per cent annually to 9 billion cubic metres (bcm) next year amid an increase in renewable capacity, improved nuclear performance and weak electricity demand.

Gas in power is expected to decline by 12 per cent year-on-year in 2024, it said.

“The anticipated rebound in industrial and residential demand will also fail to fully materialise, given challenging economic factors,” the consultancy said.

Europe narrowly avoided a full-blown energy crisis last year thanks to an unusually warm winter.

An extremely cold winter may result in an additional demand of more than 20 bcm, with gas storage levels falling to 26 per cent by March 2024, Wood Mackenzie said.

“However, forecasts of an El-Nino year suggest there is now a higher chance of a warmer-than-average winter across Asia and Europe, which risks putting further downwards pressure on prices,” the consultancy said.

“Weather will play a key part on how markets will balance.”

Wood Mackenzie has forecast a tighter gas market in 2025 as Russian imports through Ukraine come to a stop.

“The market anticipates a big drop in prices in 2025 on the expectations that more LNG supply will be available. However, we think this is overplayed as it will take time for supply to ramp up, while LNG demand in Asia will increase,” Mr Chavez said.

The consultancy has projected less LNG supply to Europe in 2025, compared with 2023 and 2024.

Global LNG trade hit a high of $450 billion in 2022 amid a surge in European demand following Russia's invasion of Ukraine, according to the International Energy Agency.