Market Drivers October 2024
Bearish Drivers
· Storages refilling on track to be full ahead of the start of heating season.
· Continued weak power sector demand, exacerbated by forward curve above the minimum CSP.
· Further weakness in the Eurozone manufacturing sector suggesting slower industrial recovery.
Bullish Drivers
· Stronger residential demand and possibility of even colder below normal weather to lift demand even higher.
· Despite both sides seeming intent on keeping the gas flowing, damaged infrastructure at Sudzha remains an elevated risk.
· Middle East geopolitical uncertainty.
Throughout October, prices on spot and near-curve contracts have remained mostly rangebound, with periods of heightened volatility driven primarily by geopolitical events. On October 4th, Day-Ahead (DA) and Front-Month (FM) prices reached yearly highs but have eased slightly since, as Middle East tensions moderated following reports that Israel will avoid targeting Iranian oil facilities. However, Israel’s planned retaliation for last month’s missile attacks from Iran keeps market participants on edge.
The UK gas market is expected to tighten in November, with the NBP contract currently trading at a 2p/th premium over its TTF counterpart. This suggests that the UK may start importing gas through the Interconnector (IUK) pipeline, marking the first net import since March. LNG sendout remains subdued compared to last year, though it’s higher on a month-to-month basis.
Norwegian production is projected to remain steady at 329 million cubic meters per day (mcm/d) in November, which aligns with last year’s output and reflects a 17 mcm/d increase from October as maintenance activities ease. The UK’s gas balance outlook suggests a tighter supply environment compared to November last year, with imports from the Continent likely necessary to meet demand, especially through the IUK.
While Local Distribution Zone (LDZ) demand is expected to rise across both the UK and Northwest Europe (NWE), the UK shows a more significant year-on-year increase of 18 mcm/d versus NWE’s 3 mcm/d. Industrial gas demand remains weak, with no improvement in economic indicators, while power demand for gas is low due to robust renewable and nuclear generation. Although gas-for-power demand will likely see a month-on-month uptick, it remains below last year’s levels.
The EU’s 90% storage target by November 1 will be met easily, with Northwest Europe storages expected to draw down by 55 TWh in November, ending the month at around 85% full—11 percentage points below last year’s levels but still at a healthy capacity. However, risks to this outlook include potential European gas infrastructure outages, global LNG supply disruptions, and volatile geopolitical developments in the Middle East, which could spur short-term market fluctuations. Weather revisions may also add uncertainty in the coming weeks.
Weekly Market View – w/c 14th October, 2024
Weekly Market View – w/c 7th October, 2024
Market Drivers September 2024
Bearish Drivers
· High European gas storages (95%) ahead of the targeted November deadline.
· Projected “above average” temperatures for remainder of October.
· Low UK domestic gas demand.
· Increased Norwegian injections as production at Kristin ramped up following maintenance.
Bullish Drivers
· Uncertainty of temperature over winter coupled with cessation of gas through Ukraine for Northwest Europe.
· Escalating tensions in the Middle-East amid wider implications of conflict with neighbouring countries.
· Unplanned outages in Norwegian gas facilities during winter period.
Europe is ending the trading year with a sense of confidence, bolstered by gas storage levels at 94% capacity—just slightly below last year’s record high at this time.
Weather forecasts for October predict temperatures above seasonal averages, further supporting optimism. In early September, German Vice-Chancellor and Economy Minister Robert Habeck also expressed confidence, stating, “There is no more shortage of gas, gas storages are full,” referring to Germany’s gas reserves being 96% full as of 23 September. While the situation appears stable, certain market risks remain, which could lead to storage depletion by the end of winter.
One factor that could slightly tighten the market is the cessation of 14 bcm of Russian gas transit through Ukraine next year. While Northwest Europe no longer relies on Russian pipeline gas, the end of this transit in January 2025 may draw an additional 4 bcm of gas from Northwest Europe during Q1 2025 to supply neighbouring countries like Italy, the Czech Republic, Slovakia, and Austria, which still import Russian gas via Ukraine.
Norwegian gas output for Winter 2024 (WIN24) is expected to remain steady at 61 bcm, matching WIN23 levels, driven by strong production from the flexible Troll and Oseberg fields. In contrast, UK and Dutch gas production is anticipated to decline further due to the lack of new fields and field maturation. In the Netherlands, output from remaining fields will continue to decrease following the permanent shutdown of Groningen in October. Meanwhile, in the UK, several companies have paused or halted new UK Continental Shelf (UKCS) projects due to increased energy profit taxation and the removal of tax offsets for investments.
Traders analysis shows that regardless of Russian imports via Ukraine next year, a cold winter would put the market in a difficult position. In a Cold weather scenario, Northwest Europe’s gas storage could fall to just 3% by the end of WIN24 if Russian transit continues, or be completely depleted without it—both scenarios would significantly impact market dynamics. Under the Central scenario, with average weather conditions, storage levels could end winter between 17-24%, which is still uncomfortably low. In either case, the market will need to secure additional supply to struggle back to a 90% capacity rate before the next winter. Only in our Mild scenario do storage levels end WIN24 at a more secure 51-58% of capacity.
Escalating geopolitical tensions in the Middle East pose a significant risk to European gas prices, particularly if the conflict spreads to other key energy-producing countries. The region is a critical hub for global oil and gas supply, and any disruption to production or transportation routes—such as through the Strait of Hormuz—could tighten global energy markets, leading to price spikes. Additionally, increased instability could divert liquefied natural gas (LNG) supplies away from Europe, exacerbating supply concerns as Europe continues to rely on imports to meet its energy needs, especially during winter months.