In February 2024, the Dutch TTF benchmark for European gas prices experienced a significant decline, dropping below €25/megawatt-hour (MWh), reaching levels last observed during the summer. This marks a steep decrease of over 50% compared to the same period a year ago.
This decrease reflects a broader trend influenced by various climatic and economic factors. Warmer-than-average temperatures across the Northern Hemisphere, coupled with a notable decrease in both industrial and domestic demand for natural gas, have contributed to this decline.
A mild winter, particularly in France and Germany, has led to subdued demand for heating. Both countries are experiencing their third and fourth warmest winters in 34 years, respectively.
European natural gas storage levels are currently at new five-year seasonal highs, with the EU’s gas reserves at 65.9%, Germany at 71.56%, Italy at 60.3%, and France at 51.3%, according to data from Gas Infrastructure Europe’s Aggregated Gas Storage Inventory (AGSI). The global downturn in manufacturing activities since 2022 has significantly impacted the industrial demand for gas, particularly in Europe.
Another key factor contributing to the recent sharp decline in European natural gas prices is the strong performance of renewable energy sources and nuclear power generation. After underperforming in 2021 and 2022, wind and solar energy have shown significant improvement in 2023, and hydroelectric power is performing near five-year seasonal highs. Additionally, nuclear power generation has seen better output in the second half of 2023 and into 2024.
Looking ahead to the natural gas outlook for 2024, Francisco Blanch, a commodity strategist at Bank of America Global Research, anticipates a greater likelihood of TTF natural gas prices trending downward into spring, especially if the global economy remains sluggish. Recent increases in investor positioning could be reversed, further driving TTF prices downwards.
However, Blanch also highlighted some risks potentially leading to surprising upside in natural gas prices. A resurgence in manufacturing activity could increase global industrial gas demand, while disruptions in the Red Sea region could provide Europe with a significant boost. Additionally, regulatory approval requirements for LNG terminals pose a significant risk of delays in planned 2024 capacity, potentially curtailing global supply growth in the latter half of 2024 and beyond.
Goldman Sachs’ commodity analysts Samantha Dart and Daniel Moreno recently lowered their TTF natural gas price forecast from €41/MWh to €31/MWh. This suggests that the expected global gas oversupply during this period could be significant enough for Europe to offer incentives to reduce supply and prevent storage congestion next summer.
Despite the comfortable end-winter storage levels, Europe has not yet resolved its energy crisis, according to Dart and Moreno. They believe another winter must pass before the risk of extreme gas price spikes diminishes. The structural deficit in European natural gas hasn’t been fully addressed, as increased LNG supply hasn’t completely compensated for lost Russian imports. Consequently, European gas prices remain susceptible to supply disruptions or spikes in demand, particularly during winter.
Starting in 2025, there will be a notable surge in global LNG supply, leading to an oversupply situation in the market and subsequently driving down European gas and LNG prices, particularly throughout 2026-2028.
