Natural
gas
prices
in
Europe
have
been
volatile
this
spring
amid
colder
weather
and
lower
supplies
from
Norway.
But
as
we
head
into
summer,
the
European
Union
is
already
preparing
for
the
next
winter.
So
far
the
outlook
is
promising:
European
gas
storage
stocks
are
63.2%
full
(as
of
May
5),
a
level
higher
than
in
2023
and
higher
of
the
average
of
the
last
five
years
(47%).
This
level
is
second
only
to
what
was
seen
in
2020,
when
the
collapse
of
global
demand
in
the
covid
pandemic
pushed
futurescontracts
below
€9.
And
one
analyst
is
predicting
that
European
gas
storage
could
reach
100%
capacity
by
the
start
of
the
2024
winter.
But
there
are
risks
ahead
as
Chinese
demand
for
LNG
increases
and
Europe
competes
for
supplies.
On
the
Dutch
TTF
market,
the
front-month
natural
gas
future
is
trading
at
around
€31
per
megawatt-hour
(on
May
8),
the
same
level
as
three
years
ago,
and
almost
half
the
€54/MWh
reached
on
October
8
last
year,
the
day
after
the
Hamas
attack
on
Israeli
that
triggered
a
massive
military
counteroffensive.
“Natural
gas
prices
in
Europe
experienced
a
fair
amount
of
volatility
in
April,”
said
Warren
Patterson,
head
of
commodity
strategy
at
ING,
in
an
analysis
released
on
May
7.
“One-month
futures
on
TTF
rose
from
just
over
€25/MWh
at
the
beginning
of
April
to
almost
€34/MWh
by
mid-month,
before
falling
below
€30/MWh
at
the
end
of
the
month.
However,
prices
rose
again
at
the
beginning
of
May.
Reduced
Norwegian
gas
flows
to
Europe
and
a
late
cold
spell
across
much
of
the
continent
increased
heating
demand
in
the
second
half
of
April.”
According
to
Patterson,
however,
this
volatility
will
be
transient:
“Europe
will
reach
100%
storage
before
the
start
of
the
next
heating
season.”
“This
should
keep
downward
pressure
on
prices
and
we
expect
the
TTF
to
average
€25/MWh
for
the
rest
of
the
pre-winter
season.”
The
table
below
shows
the
differences
between
countries
in
terms
of
gas
storage.
EU
Less
Dependent
on
Russia
Energy
Following
the
Russian
invasion
of
Ukraine,
the
EU
succeeded
in
abandoning
Russian
gas
imports.
After
the
painful
increases
in
energy
prices
in
2022,
we
have
seen
a
steady
decrease,
thanks
to
a
combination
of
mild
weather
and
falling
demand.
At
the
same
time,
LNG
(liquefied
natural
gas)
imports
and
the
infrastructure
to
support
them
are
growing
rapidly.
According
to
data
from
Bruegel,
a
Brussels-based
political-economic
thinktank,
theEU
reduced
Russian
fossil
fuel
imports
from
a
maximum
of
$16
billion
per
month
at
the
beginning
of
2022
to
around
$1
billion
per
month
by
the
end
of
2023.
While
Russia
no
longer
enjoys
the
extraordinarily
high
export
earnings
it
did
early
2022,
its
revenues
from
fossil
fuel
exports
are
still
comparable
to
those
of
2019,
mainly
because
the
country
has
shifted
oil
and
gas
exports
to
China,
India
and
Turkey.
To
compensate
for
the
reduction
in
Russian
imports,
Europe
has
increased
imports
from
other
countries.
Europe
Needs
More
LNG
Globally,
demand
for
LNG
is
at
record
levels.
While
Europe
is
importing
an
increasing
amount
of
LNG,
it
is
also
in
competition
with
China
for
the
commodity.
Europe’s
LNG
imports
doubled
from
20%
in
2019
to
40%
in
2023,
thanks
mainly
to
a
fivefold
increase
in
imports
from
the
US.
Imports
of
Russian
LNG
also
increased,
but
in
absolute
terms
this
increase
represented
less
than
10%
of
the
gas
transit
through
the
Nord
Stream
pipeline
when
it
was
operational.
According
to
Energy
Outlook
Advisors
(EOA),
ship
tracking
data
shows
that
global
LNG
demand
reached
an
all-time
high
in
2023,
to
401
million
tonnes
(mt),
up
from
390
mt
in
2022,
which
itself
had
already
been
a
record
year.
This
demand
comes
amid
limited
additions
of
new
capacity
and
lower
spot
prices
compared
than
in
2022.
This
increase
in
LNG
demand
has
made
European
countries
vulnerable
to
market
volatility,
especially
since
70%
of
these
imports
are
purchased
on
short-term
contracts.
Last
year,
exceptionally
mild
winter
weather
reduced
heating
demand
in
both
Europe
and
Asia.
Besides
the
mild
weather,
the
economic
slowdown
experienced
in
China
between
2022
and
the
first
part
of
2023
reduced
Beijing’s
LNG
imports,
but
this
could
be
changing.
Chinese
Economy
Stirs
Again
Driven
by
Chinese
demand,
Asia
remained
the
top
destination
for
seaborne
LNG
cargoes
in
2023,
receiving
more
than
258
mt
or
64%
of
global
demand.
And
according
to
EOA’s
data,
China
overtook
Japan
as
the
world’s
largest
LNG
importer
last
year,
with
a
13.7%
increase
in
its
imports,
after
Chinese
gas
demand
in
2022
was
affected
by
industry
weakness
due
to
covid
control
measures
and
high
LNG
spot
prices
caused
by
an
unprecedented
European
demand.
Now,
however,
the
Chinese
economy
is
showing
signs
of
awakening:
the
first
quarter
of
2024
saw
GDP
growth
of
+5.3%
year-on-year,
above
market
expectations,
even
higher
than
the
already
ambitious
target
that
the
Beijing
government
had
set
for
itself
(which
predicted
growth
of
around
+5%).
And
indeed,
according
to
estimates
by
China’s
state-controlled
Economics
and
Technology
Research
Institute
(ETRI),
total
Chinese
imports
of
natural
gas,
both
piped
and
liquefied
by
ship,
reached
an
all-time
high
in
the
first
quarter
at
33
mt.
March
alone
saw
a
21%
jump
year
on
year.
At
the
same
time,
according
to
the
ETRI,
China
is
expected
to
add
a
record
60
mt
per
year
of
new
LNG
receiving
capacity
in
2024,
bringing
its
total
LNG
receiving
capacity
to
176
mt
per
year,
a
52%
increase
from
2023.
According
to
the
US
Energy
Information
Administration
(EIA),
“growing
LNG
consumption
in
Asia
is
a
key
uncertainty
with
potentially
major
implications
for
global
markets”.
“The
lack
of
long-term
contracts
in
Europe
increases
supply
risk
during
cold
weather
and
price
spikes
and
may
also
intensify
competition
for
spot
LNG
between
regions”.
Not
least
because,
as
EIA
analysts
point
out,
global
LNG
markets
will
see
modest
supply
increases
in
the
coming
years.
Prices
Likely
to
Remain
Volatile
So
there
are
plenty
of
unknowns.
“Gas
prices
in
Europe
are
likely
to
remain
volatile
for
some
time
as
the
EU
has
to
compete
with
the
more
price-sensitive
China
and
to
a
lesser
extent
India
and
Thailand
for
LNG
cargoes,”
says
Stephen
Ellis,
a
strategist
at
Morningstar
specialising
in
utilities.
“This
dynamic
introduces
greater
price
unpredictability,
as
the
reliability
of
LNG
cargoes
is
not
guaranteed
in
the
very
short
term
at
the
most
optimal
price.”
However,
the
market
does
not
currently
expect
huge
spikes
in
the
coming
months.
On
the
TTF,
natural
gas
futures
contracts
maturing
in
December
2024
are
trading
at
€37.5/MWh
(around
20%
above
current
levels),
while
those
for
January
and
February
2025
are
trading
at
around
€37.9/MWh.
“As
storage
facilities
in
the
EU
and
the
US
are
very
full,
gas
prices
are
likely
to
remain
extremely
low
through
2024,
before
recovering
in
2025
as
renewed
demand
for
LNG
comes
on
stream,”
Ellis
adds.
In
this
context,
Morningstar
analysts
believe
that
the
best
opportunities
are
represented
by
companies
that
leverage
gas
demand
at
discounted
prices,
such
as
Kinder
Morgan
(KMI)
and
TC
Energy
(TRP),
which
will
benefit
from
increased
demand
and
supply
of
LNG
feedstock.
The
table
above
also
shows
which
exchange
traded
commodity
funds
have
exposure
to
natural
gas.
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