Natural Gas Prices

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.

In the third quarter of 2022, European and Asian spot gas prices reached new record highs but remained highly volatile. Driven by the Russian gas crisis and threats of pipeline supply cut, European gas prices peaked at over €300/MWh at end-August, contributing strongly to the European inflation. However, three bearish factors have moderated European prices over the last few weeks: the good replenishment of stocks, the very strong growth in LNG imports at the expense of China and the sharp reduction in gas consumption (plants’ closures and industrial demand destruction, energy substitution and energy savings) in response to the surge in gas prices. The massive inflow of LNG and the destruction of demand in Europe have kept storage levels high and these two factors will be crucial to get through the next winter without a deficit.