False sense of security from easing energy prices

Natural gas prices have plunged since their summer peak, supported by ample stocks and by the EU emergency measures. While near-term stress has eased, longer-term supply/demand tightness remains, calling for higher risk premiums. As Russia loses its leverage, demand elasticity and weather might be the new pivotal gas drivers.

Demand destruction, liquefied natural gas (LNG) imports and mild weather have helped restore EU inventories. Gas prices have plunged 70% from their summer peak, due to several factors:

  • LNG imports have soared, especially from the United States, Norway, and the United Kingdom.
  • Demand destruction in response to high prices has intensified, especially from industry, which makes up 40% of EU gas demand. Industrial gas consumption dropped by over 25%, especially in those sectors most sensitive to gas, such as metal fabrication, chemicals, food transformation, and machinery.
  • China’s gas demand has slowed, due to the country’s disappointing economic performance, freeing up some volumes for Europe.
  • Finally, mild weather in Europe, as well as encouraging November temperature forecasts, have helped reduce heating demand.

You can now read the full whitepaper at the link below