(Montel) Europe’s gas prices have limited scope to drop further as lower prices encourage demand but deter LNG supplies, said Sweden’s SEB bank on Thursday.
“Demand reduction and elevated LNG imports are currently overcompensating versus running losses in natural gas supply from Russia,” it said in a note.
Although this may drive TTF prices lower still for “a little while longer”, the market would likely see demand rise and LNG imports fall in “not too long”, it said, as LNG producers seek higher prices in other markets.
Europe’s benchmark front-month gas contract on the Dutch TTF hub traded last at EUR 58.50/MWh, down by nearly a quarter since the end of last year and well below the 2022 average of EUR 133/MWh, according to Ice Endex data.
The continent turned to LNG as pipeline gas supplies from Russia dwindled after Moscow invaded Ukraine in early 2022.
Industry return?
High inventory levels and a relatively mild winter had eroded demand in December and January, according to SEB.
But it said Europe was “still not home free”, with prices only likely to “grind lower” or continue sideways for a “little while longer”.
“This is likely a lingering effect of very high prices in Q3 2022 and December 2022 [but] this lingering price effect is likely to wear off in not too long as the TTF price is now much lower.”
Demand would then likely pick up due to the lower TTF prices, SEB added.
“If energy-intensive industry decides to restart at current prices, then they will likely lock in prices at around EUR 60/MWh for the coming year as well, thus making their natural gas demand less sensitive to price spikes down the road.”
Although this may drive TTF prices lower still for “a little while longer”, the market would likely see demand rise and LNG imports fall in “not too long”, it said, as LNG producers seek higher prices in other markets.
Europe’s benchmark front-month gas contract on the Dutch TTF hub traded last at EUR 58.50/MWh, down by nearly a quarter since the end of last year and well below the 2022 average of EUR 133/MWh, according to Ice Endex data.
The continent turned to LNG as pipeline gas supplies from Russia dwindled after Moscow invaded Ukraine in early 2022.
Industry return?
High inventory levels and a relatively mild winter had eroded demand in December and January, according to SEB.
But it said Europe was “still not home free”, with prices only likely to “grind lower” or continue sideways for a “little while longer”.
“This is likely a lingering effect of very high prices in Q3 2022 and December 2022 [but] this lingering price effect is likely to wear off in not too long as the TTF price is now much lower.”
Demand would then likely pick up due to the lower TTF prices, SEB added.
“If energy-intensive industry decides to restart at current prices, then they will likely lock in prices at around EUR 60/MWh for the coming year as well, thus making their natural gas demand less sensitive to price spikes down the road.”
