Gas markets weaker, little additional downside potential next week

Prices on the German spot THE and for the front month Dec-23 have converged significantly on the German THE in the past week. In the previous week, the front month was still around 4 EUR/MWh more expensive than the spot, with the spread falling to below 0.5 EUR/MWh on Thursday.

Temperatures in Germany are expected to return to the seasonal norm of 4-6°C from the middle of next week until the end of the month. With the rising demand for gas and the increase in withdrawals, there is little additional downside potential for spot prices on the THE and TTF.

On the German THE, the day-ahead traded at 45.96 EUR/MWh on Thursday, an increase of 1.73 EUR/MWh compared to the previous week. Front month Dec-23 closed the trading day at 46.34 EUR/MWh, down 2.48 EUR/MWh on the previous week. On the futures market, Cal-24 fell to 48.41 EUR/MWh (-1.69 EUR/MWh).

Spot markets in Europe with high location spreads

Spot prices developed very differently in the individual European markets last week. In France, Belgium and the UK, spot prices fell below EUR 40/MWh at times due to full gas storage facilities, high LNG send-outs and low demand. As a result, the spread to spot on the German THE and Dutch TTF rose to over EUR 6/MWh at times.

Price pressure in France, Belgium and the UK could ease next week, as demand should increase as temperatures fall and gas flows between the UK and continental Europe are interrupted between November 16 and 30 due to maintenance on the Interconnector (IUK).

Geopolitical risks and weather support futures trading

The forward curves on the European gas markets are very flat. On the German THE, front month Dec-23 to Q3-24 are quoted within a spread of less than EUR 2/MWh. Gas prices have thus settled at a level of just under EUR 50/MWh.

Forward prices continue to be supported by the risks in the Middle East and the typical weather risks in the current winter. Some of the support may also have come from the Ukrainian warning of possible Russian attacks on the Ukrainian gas sector and the introduction of the new Bulgarian transit tax on Russian gas imports.

In addition, the announced delay in the commissioning of the expansion of the German LNG infrastructure may have provided support. The three other planned floating LNG terminals in Germany are now not due to go into operation until the beginning of next year and not this year as planned.

Lower forward prices only from 2027

Traders do not currently expect a sustained fall in prices for the calendar year 2025 either; the Cal-25 contract was quoted at around EUR 45/MWh on Thursday, around EUR 3/MWh less than Cal-24.

Gas traders do not expect a sustained easing until 2027; the Cal-27 contract was quoted at around EUR 32/MWh on the German THE on Friday, around EUR 14/MWh less than is currently being paid on the prompt.

LNG wave between 2025 and 2027

Annual global LNG capacity expansions fell significantly after 2020 and have been less than 15 billion cubic meters per year since then. Based on current project schedules, a significant increase in LNG capacities is only expected from 2025 onwards.

Global LNG capacity is expected to increase by more than 250 billion cubic meters per year by 2030. 80 percent of this capacity expansion will be accounted for by the producers Qatar and the USA. Around 180 billion cubic meters per year are to be added between 2025 and 2027. This extremely strong growth from 2025 onwards should bring the global gas markets back into balance and is the reason for the lower forward prices from these periods onwards.