Sectors UpClose: ‘Smooth sailing’ for European natural gas | REUTERS
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hello and welcome to sectors up close
I’m Raman kalei today we’re talking
about European natural gas prices and my
guest is Wayne Bryan director for
natural gas at the London Stock Exchange
group European natural gas Futures have
ticked up in recent weeks after hitting
a 2024 low around the end of February
prices of The Benchmark European natural
gas future have steadily climbed in
recent weeks this despite the fact
European economies have now survived a
second winter without Russian Gas part
of that of course was down to mild
weather and part was due to contined
demand destruction well to unpack all
this and to help us understand where
prices are headed I’m now joined by eleg
Wayne Brian Wayne thanks so much for
joining us well let’s start with those
prices why have they started to rise
since the end of February uh good
afternoon and yeah indeed what we saw
was prices had fallen but we had a
combination of bullish factors that saw
prices we were in a nice 23 to sort of
28 range
first we had supply issues at LG on the
LG front so we saw a few issues at train
three at Freeport LNG then you had uh
Russia targeted Ukrainian gas storage
facility which as you know due to the
fragility of our markets at the moment I
think that really had an impact as well
thirdly you saw some outages on some
Norwegian infrastructure and you’ve also
had the impact of the eu’s decision to
look at ways that European companies can
negate the need to import Russian Andor
Belarusian L and pipe gas see you had
this confidence of events just sort of
happen and then we saw prices really
react but have you seen the last couple
of days we’ve seen prices start to fall
back and interestingly both of the
benchmarks both for the ttf and the MBP
sort of hit their 200 day average sort
of resistance was there and they’re
steadily trickling back down we’ve still
got that geopolitical risk premium in
there as well and the Middle East
situation has also been contributing
with that just simmering away in the
background so yeah a number of reasons
really and let’s draw down into that
Middle East conflict and the
geopolitical tensions I mean what do you
make of that in terms of the impact you
say it’s not a huge impact on the gas
market it doesn’t have a huge impact on
Supply unless we start talking about
closing the straight of Hummers and
start talking about other issues with
shipping that’s where the upside risk
comes from the gas market in terms of
the actual Supply not a huge risk but as
you know with these geopolitical
situations as risk start to rise
contagion occurs and not only do related
markets like crude get a hit but you see
the hit in equity you see gas markets
also so a lot of that is sentiment
driven but in terms of geopolitical one
of the main implants is obviously the
Russia Ukraine situation and the
targeting of those gas facilities was
really really quite a shock to the
markets because previously they had not
been touched and of course the transit
agreement uh expires at the end of next
year or the end of this year sorry so
that also lays you know it it lays seed
that will we see further attacks now
this deal is now going to uh expire and
is very very not looking likely to be
renewed to be honest so yeah a
combination of these factors now um in
your research you talk about demand
destruction on the gas market can you
just elaborate on that please can you
explain what that actually means yeah
what we’ve seen uh a combination of
since Co we saw sort of the other way
but since the Russian invasion of
Ukraine we’ve seen prices rally to
all-time highs obviously a lot lower now
but what that did is number one it
changed consumer behaviors a lot of the
messages coming from political leaders
reducing gas obviously some people can’t
really afford to heat their homes when
prices were so high we’ve kind of kept
some of them behaviors we’ve seen
alternative ways of heating homes energy
saving measures heat pumps so what we’ve
seen now is that evolution of that
behavior has continued despite prices
falling we’re still seeing demand
destruction in Europe UK included at
around 8 to 9% of pre-invasion levels if
you look at Germany it’s been a bit of
the outlier still around 12% but the
message has been very hard from the
Germans and then we go to Industrial
demand we’ve seen Industrial mind
destruction it’s around 12 1 12% now at
the moment and that’s quite strong and
again several factors high price
environment curtailing the large users
like your chemical sector paper Metals
chemicals these sort of sectors really
really use a lot of gas and the high
prices force them to a you know Cil
production B offshoring so we’ve seen
some production moved offshore and C
adjusting production hours and also
again taking measures to reduce energy
consumption by way of efficiency so a
combination of these factors has kept
demand destruction firmly in play in
both the ldz which we call domestic and
Industrial sector let’s look at LG now
what’s your outlook there for prices and
can Russian LNG still play A Part
Russian LG still comes into Europe in in
very very large levels and again we had
a new ruling whereby the EU have now
given its member states uh the ability
to to sort of block Russian and
Belarusian gas and pipeline LG Imports
so what that’s done even though we’ve
not seen any member states take it up
yet and I think it still needs to go
completely past as law which is a
formality what that will do I mean at
the moment we can’t really do without
Russian LG but what we do see in Winter
2025 so October 25 onwards we see this
large waves of LG coming online Global
capaity Rising so what that will do is
allow us to find other sources for our
Imports and of course Russia’s LG will
just find its way back into the market
so the overall Global balance white
change it’s just a redistribution of the
flows
and finally Wayne what you look for
prices for this summer and for the
winter ahead well for the summer in our
I’ll stick to our published research we
give a sort of price range for the ttf
of around 21 to 24 prices were heading
nicely at towards that level until the
recent bit of upside but we still stand
by our view we still think storages will
be filled ahead of the mandated level
from the EU we’ve still got quite a few
bearish factors including lower demand
from the power sector lower industrial
demand Etc winter we see a lot more risk
in the winter still we’ve got the end of
the end of the transit deal which means
no more Russian gas at all pipeline wise
into Northwest Europe and then what you
also have next year is a loss of or this
winter is a loss of further German coal
capacity tightens up the market and if
we do get a cold winter then definitely
we’ll struggle to fill storages or sorry
struggle to get storages to the sort of
levels we saw at the start of this
summer which of course will bring upside
pressure on the prices so bit more
concern around the winter Summer’s
looking like sailing at the moment Wayne
briyan director of European natural gas
at the London Stock Exchange group many
thanks for your
thoughts and that is your Roundup of the
European natural gas sector I’m ramzan
Kali and this is Reuters
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European natural gas prices have risen sharply from February lows. LSEG’s Wayne Bryan explains why that is, but also says it should be ‘smooth sailing’ this summer before risks return in time for winter.
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