Higher LNG Prices to Limit Asian Demand, WoodMac Says

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(WoodMac, 12.Jun.2024) — European gas storage is forecast to reach 100% by the end of September and remain full until the end of October, with an additional 4 million tonnes per annum (mmtpa) of floating storage also accumulated according to a new report by data and analytics company Wood Mackenzie.  

The report, Europe gas and LNG markets short-term outlook Q2 2024, states that low European demand for gas has kept storage levels at record highs this year. This is despite Europe importing 11 mmtpa less liquified natural gas (LNG) through May, compared to the same period in 2023.  

“Lower European demand has depressed prices and pushed LNG into Asia with imports to China alone up 22%,” says Lucy Cullen Research Director, EMEA Gas & LNG Research at Wood Mackenzie. “Looking ahead, high prices are likely to provide some headwinds to near-term Asian demand growth. As a result, European storage levels remain on track to reach full capacity by the end of September and stay that way through October.”  

Cullen adds that the increased Asian demand, alongside risks to Russian supply and maintenances at Norwegian fields, has pushed European gas prices higher with the Title Transfer Facility (TTF) price up 40% over the last three months and trading close to US$11 per million British thermal units (mmbtu). 

European demand improving in mid-term 

The report states that a return to normal weather dynamics over the winter of 2024/2025 and a strengthening macroeconomic outlook is set to drive increased heating requirements, industrial activity and electricity demand across Europe. Overall, the report anticipates an increase in gas demand of 7 billion cubic metres (bcm) in 2025, compared to 2024.  

Meanwhile, rising Asian demand will absorb most of the yet limited new LNG coming online, but Europe should manage to import an extra 4.2 mmtpa compared to 2024. 

However, the report adds that Europe will most likely lose more Russian volumes, up to 12 bcm per annum, as the transit agreement via Ukraine expires on 1 January 2025. Central European markets will look for alternatives to bolster supply, including boosting use of LNG regasification capacity in Southeast Europe.  

Supply risks remain 

The report also states that the greatest supply risks come from Russian gas supply whether this be via an early cut of transmission via Ukraine or as a consequence of pending arbitration proceedings between European energy companies and Gazprom. Unplanned or extended Norwegian maintenance will play a more significant role as Norway is now Europe’s biggest gas supplier and how quickly new North America LNG supply reaches the market remain key concerns. 

Wave of new global LNG supply rebalances the market   

With more than 40 mmtpa of LNG supply growth expected in 2026, prices will undergo a structural shift. Asian LNG demand will absorb significant additional LNG supply, but Europe will have to absorb almost 20 Mt additional LNG in 2026, putting downward pressure on prices.  

European storage levels 

Source: Wood Mackenzie

“European storage levels will once again reach record levels, despite resilient gas demand and reduction in pipe imports from Norway,” Cullen adds. “But with the level of LNG imports in Europe only marginally higher than peak 2022 import levels, our view is that the coming wave of LNG supply will somehow be absorbed, with European prices holding close to US$8/mmbtu. The risk that US LNG cancellation will be needed to balance the market remains limited.” 

“Many risks remain for the price outlook of 2026,” Cullen concludes. “A muted demand response to lower prices across Asia would add further pressure on prices. Meanwhile, supply risks can’t be ruled out, with an anticipated escalation of Western sanctions on Russian LNG limiting supply growth, increasing the risk of a stronger-for-longer market”. ____________________ 

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