Page 6 - GLNG Week 49 2022

GLNG COMMENTARY GLNG

ING: Europe faces stiff

competition for natural gas

The collapse in European natural gas prices in Commission has been able to stick to its volun-
COMMENTARY recent months has created a false sense of secu- tary demand cut of 15% between August and the
rity. While the current winter appears to be more end of March, rather than imposing a mandatory
manageable, the region will find it more difficult 15% cut. Eurostat data shows that in August, EU
to build adequate storage for the 2023/24 winter. natural gas demand was 15% below the five-year
We see higher prices next year. average, hitting the target set by the Commis-
Given the circumstances, Europe could not sion. Numbers from third-party consultants
have hoped for a better situation heading into suggest that in the months since, demand reduc-
this winter. Demand destruction and mild- tions have exceeded the 15% target. However,
er-than-usual weather in the early part of the the risk is that with the more recent weakness
heating season have ensured that the region has in prices, we see demand starting to edge higher
continued to build storage deeper into winter once again, which would only add to the tough
– about two weeks longer compared to the five- task that the EU faces next year.
year average. EU storage continued to grow until Europe will need to see continued demand
mid-November, reaching nearly 96% full. This is destruction through 2023 to ensure adequate
well above the five-year average of almost 88% supply for the 2023/24 winter. This is particu-
for mid-November. Given the bloated storage, larly the case given the risk that we see further
day-ahead TTF prices have fallen as much as declines in Russian gas supply to the EU.
93% from the peak in August. This leaves Europe
in a better-than-expected position for this win- Russian natural gas flows remain a risk
ter. The next few months should be more man- Russian pipeline gas flows have fallen signifi-
ageable. However, it is still vital that the region cantly this year. The latest data show that year-to-
is cautious throughout this winter, as Europe date pipeline flows from Russia to Europe have
needs to try to end the current heating season fallen by around 50% year on year to roughly
with storage as high as possible given the expec- 58bn cubic metres. And, obviously, these flows
tation of a further reduction in gas flows to the have declined progressively as we have moved
region next year. through the year with reduced flows via Ukraine
Higher prices throughout much of this year and Nord Stream. Daily Russian gas flows to the
have ensured a significant amount of demand EU are down around 80% y/y at the moment.
destruction, and as a result the European Therefore, if we assume that Russian gas flows

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