Quarterly Gas Market Review: Asia market drives price recovery [Gas Expert Insights]
European gas market fundamentals look increasingly disconnected from the global market. Strong gas demand growth across the Asian regions is continuing to keep global balances tight and support a gentle rally at the front of the curve, with rising European gas prices and a stronger term structure again defying soft European demand fundamentals in the third quarter. Whether it is stagnant production, disrupted pipe imports, looming northern hemisphere winter demand spikes or a tighter LNG market, the global gas picture is much more bullish than it appeared just six months ago.
As we explain in this issue, a quiet year for LNG supply growth has meant that incremental demand for cargoes has nudged landed prices higher. For Europe, the continued weak demand picture was counterbalanced in Q3 by gently falling European gas production and reduced pipeline imports, due in large part to Norwegian maintenance. Even though European storage replenishment is healthy, and LNG send-out levels are low, prices have continued to rally from the Q1 lows, reflecting a tighter global picture. The European market has lost the volume flexibility that Russian pipeline supply offered and must now pay a premium for LNG flexibility, with storage flexibility limited by regulation.
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We anticipate the global gas market will remain finely balanced next year (our Winter Outlook will be published in mid-November). Project delays to new LNG capacity due onstream from 2025 in the US are part of that tighter outlook. Following an EPC contractor failure, Golden Pass LNG is now expected to start up its 18 mtpa liquefaction project at end-2025, six months later than planned. Sempra’s Mexican Energia Costa Azul project has been pushed back from 2025 to early 2026. Meanwhile, new LNG output from Russia’s Arctic-2 project has been loaded but remains unsold.
While the European demand picture remains weak, the pace of contraction is easing. Gas for power continues to decline but industrial gas demand is rebounding off a low base, particularly driven by petrochemicals and fertilizer. Gas for power was down 13.7 per cent in Q3 despite a strong rise in electricity demand, implying that higher nuclear generation and renewables capacity are now doing a lot of the heavy lifting. Looking forwards to the winter, La Niña could produce colder conditions than the recent two mild winters, which limited storage draws for space heating in Europe. Added to this is the prospect that Russian pipeline flows via Ukraine halt at year end, requiring additional LNG flows into southeastern and central eastern Europe to make up the shortfall. These expectations are likely priced in, so another mild winter could see some of that price premium dissipate. On the other hand, colder than average temperatures will likely underpin firmer prompt and term prices as markets price the need for additional European storage injections through summer 2025.
Read full report by Oxford Institute for Energy Studies.
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