The Hope For ‘A Normal Winter' Key To European Gas Outlook

If colder-than-expected weather hits, Northwest Europe could run out of natural gas by March 2023.

Enverus Intelligence Research (EIR), a subsidiary of Enverus, the most trusted energy-dedicated SaaS platform, has released a European natural gas outlook combining its view on European gas balances and the impact of Russian supply shut-offs through the winter.

“Our scenarios show that failure to ration gas supply sufficiently this winter would mean that European countries would exhaust stocks by February 2023 if winter temperatures are lower than usual,” said Krishna Sapkota, Enverus Intelligence senior associate. “Yet with 15% demand rationing as targeted by the European Union, Europe will likely be able to survive the full disruption of Russian supply this winter if we see average winter temperatures.”

Key takeaways from EIR’s European Natural Gas Outlook

• European gas market benchmark TTF futures have fallen 40% since the late August high of $101/MMBtu to $60 on Sept. 9, reflecting the recessionary outlook and healthier stock levels along with anticipated European government policies to curb power demand. If normal weather plays out for the winter with 15% demand rationing, we expect prices will fall below the TTF strip at ~$56/MMBtu and ~$54 in 4Q22 and 1Q23, respectively. Prices could rebound higher if winter temperatures are lower than usual in Europe and higher gas demand in Asia tightens LNG balances.
• Even if Russia’s gas exports to the EU drop to zero from September, Europe should emerge from an average European winter in April with stocks at similar levels to this year, assuming the bloc implements the targeted 15% reduction in consumption, according to Enverus scenarios. A 15% upwards deviation from average demand would leave EU gas stocks nominally empty by February-March.
• Having already exceeded the Nov. 1 fill level target of 80%, EU countries are ahead of plan. At current fill rates, storage should be more than 90% full by November, according to Enverus calculations. High gas prices have already reduced EU residential and commercial gas demand by 12%, while industrial gas demand is down 30% versus the five-year average, or 14% versus 2021.
• To counter the inflationary and economic impact of high gas prices, the EU is due in the next few weeks to announce new regulatory and policy measures for gas and power markets. These are expected to include measures to further reduce gas demand, institute fresh windfall taxes on energy companies to finance reduced costs for consumers and intervene in the power market to disaggregate gas prices from other forms of generation.

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