In the second quarter of 2023, European and Asian spot prices continued to fall sharply in a context of weak demand and high inventories in the three major consumer markets (Europe, Asia and North America). In the second quarter of 2023, European and Asian spot prices were on average 60% lower than in the second quarter of 2022 but remained historically high. Improving gas supply-demand balances have resulted in a relatively abundant supply of LNG on the international market and high stock levels, particularly in Europe. As a result, the markets are not currently anticipating any major supply tensions in the short term. However, this view may change depending on weather conditions, which remain the main factor of risk and uncertainty.
In the first quarter of 2023, European and Asian spot prices continued the downward trend observed since the summer of 2022, despite the fall in Russian pipeline gas deliveries. European gas prices have reached their lowest level since the summer of 2021 but remain two to three times higher than the historical average. These relatively calm market conditions are due to several factors: a milder than normal winter which has reduced gas consumption for space heating, continued strong LNG imports into Europe and lower gas consumption in all sectors. These developments have kept European storages at record levels, which is a bearish factor on forward prices.
Evolution of international gas prices in the first quarter of 2023
In the first quarter of this year, the EU TTF price was 42% lower than in the previous quarter, at $16.8/MBtu (€54/MWh), returning to a level similar to that in the third quarter of 2021. The TTF bottomed out at $12.6/MBtu (€40/MWh) on the 20 March, its lowest level since the summer of 2021. European market fundamentals are bearish. It is estimated that in the first quarter of this year, EU gas consumption was 17% below the seasonal average. Against this background, continued strong imports of LNG and Norwegian gas have allowed to both replace Russian pipeline gas and ensure a very high level of gas storages.
In the fourth quarter of 2022, average European and Asian prices fell back compared to the previous year. European prices have been extremely volatile in the short term, with periods of dramatic, weather-driven declines. The TTF price has fallen over the last four weeks to pre-war levels in Ukraine, a sign of unexpected easing in the European market as the Russian gas crisis intensifies. The drop in gas consumption, due to unusually mild weather and the decline in industrial activity, and the continued strong growth in LNG imports explain the very high level of European gas stocks, which reaches 930 TWh at the beginning of 2023. This situation has pushed down spot and forward prices and eased fears of tensions in the coming months.