Natural Gas Outlet Box

As Putin turns down the gas taps, the direction of European gas prices is set to be up

The benchmark price for European gas sat at USD 42.8 per one million British thermal units (MMBtu; around EUR 139 MWh) on 6 December. That means it is up roughly 50% year on year, and remains at one of the most elevated levels on record even after easing from the USD 100+ per MMBtu highs seen in August.

Our panelists see European gas prices rising gradually next year from current levels, to close to USD 47 per MMBtu (roughly EUR 152 MWh) by Q4 2023. Over 2023 as a whole, prices are projected to average at a record-high level.

The principal cause of this will be reduced Russian supply. Russia’s share of European gas imports was still over 17% in August, making it one of Europe’s top suppliers. A repeat of this winter—which has seen gas inventories rise to above 90% capacity—seems unlikely in 2023. With Russian exports to Europe likely to continue declining next year, the strain on supplies will become more acute. Meanwhile, Europe will have to compete for LNG cargoes with Asia, particularly China. In addition, demand will be supported by continued energy subsidies from European governments.

Key factors to watch include global economic activity, the weather this winter and in 2023, the reopening of the U.S.’s Freeport LNG terminal, and Russian supply—with the potential for Moscow to turn off the gas taps completely.

  • Insights from our analyst network:

ING’s Warren Patterson commented:
“The pace of inventory builds during the 2023 injection season will be much more modest compared to what we have seen this year, given the reductions in Russian supply […]. The ability of the EU to completely turn to other sources is just not possible. There are constraints to how much more LNG Europe can import. There are reports that LNG carriers are queuing for spots at regasification units. This highlights the lack of regas capacity in Europe at the moment.”

Analysts at the EIU said:
“The real test of European resilience will come at the height of the domestic heating season between November and February, and stocks could be depleted rapidly in the event of prolonged cold temperatures. The supply of LNG from the US will also be affected by the closure of Freeport LNG terminal since a fire in June. The plant was scheduled to restart in late November, with a target of reaching full capacity by end-March 2023. With Russian pipeline supplies to northern Europe unlikely to resume, there will be a fresh challenge in mid-2023 to refill storage in Europe, particularly if there is a resurgence of LNG demand from Asia.”


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