Market Drivers December 2024
Bearish Drivers
· Softer gas-fired power generation due to higher nuclear availability and gas-to-coal switching.
· Flat demand in the residential and industrial sector in January due to warm weather forecast and weakness in the manufacturing sector.
· A gradual rise in LNG arrivals in January.
Bullish Drivers
· Stronger flows from NWE to neighbouring countries due to the end of Russian flows via Ukraine from January 2025.
· NWE aggregated storage inventory is forecast to remain below recent years.
European gas prices have fallen sharply this month, with the month-ahead price down 17% amid upward revisions in temperature forecasts and increased renewable output. The FM contract has stabilized around €40/MWh after earlier averaging €45/MWh. Risks persist for SUM25, as its premium over WIN25 has narrowed to €1.77/MWh from €4/MWh, reflecting concerns over low end-of-winter storage levels, currently at 428 TWh—significantly below last year.
The NBP JAN25 contract has dropped 18% since early December, tracking the bearish trend of its TTF counterpart due to warmer weather forecasts and higher renewable output. After starting December at 122 p/th, it has fallen to around 100 p/th. The SUM25-WIN25 spread has flipped into contango, with SUM25 now trading at a 1.2 p/th discount to WIN25, reversing its premium seen earlier.
Spot demand remains muted despite colder-than-normal weather forecasts, supported by ample inventories and weak demand in key regions like China and Japan. LNG volumes are rising, with additional supply from Plaquemines and minimal maintenance expected to keep price movements subdued. In January, LNG sendouts in NWE and the UK are forecast to rise by 41 mcm/d, offsetting some of the lost Russian flows through Ukraine.
January NWE storage withdrawals are forecast to average 3,343 GWh/d, up from 3,129 GWh/d last year, leaving stocks 52% full and 102 TWh below January 2024 levels. With limited supply and higher storage demand, bullish pressure persists for SUM25, supported by low replenishment rates in central and cold scenarios. This maintains SUM25’s premium over WIN25, even as it narrowed to €1.86/MWh in mid-December due to milder weather forecasts.