The European Union’s (EU) independent energy regulator reported the bloc’s natural gas consumption has continued to drop even as trade liquidity and imports from the United States are still on the rise.
The EU’s gas consumption has dropped 20.3% year-to-date, according to the latest market report from the European Union Agency for the Cooperation of Energy Regulators (ACER).
ACER analysts wrote that the voluntary gas cuts industrial users made last year at the start of Europe’s energy crisis have continued despite improving supply stability. Consumption from Europe’s power sector has also declined, adding to the drop in demand.
“Gas-fired power generation started to drop in November 2022 in view of improving renewable and nuclear production and lower electricity consumption,” analysts wrote.
Gas-fired power generation has dropped by 7% in 2023 compared to the same period last year.
Lower levels of consumption and the steady stream of LNG cargoes across the Atlantic have meant EU storage has built at a faster pace than last year. ACER reported stocks at EU facilities were above 70% by the middle of the month and are on track to meet November’s 90% target.
Several financial institutions have adjusted their forecasts for global gas prices during the summer after concluding the EU may meet its storage goals well before November.
While steady supply has meant LNG prices have fallen well below the extreme premiums of last summer, prices are still around 1.5 times higher than the five-year average for the season, according to ACER analysts.
The United States remains the main LNG supplier for the bloc, having supplied around 52% of LNG volumes on a monthly basis. The majority of those cargoes head to terminals in France, Italy, the Netherlands and Spain. Qatar and Russia also top the list of EU LNG supplies.
Imported U.S. volumes reached a two-year high in April, with European terminals receiving 4.18 million tons (Mt), according to data from Kpler. U.S. volumes have maintained around 3.7 Mt/month despite maintenance at key Gulf Coast terminals during late May and early June.
Thanks to a combination of LNG, reduced consumption and pipeline supplies from Norway and other partners, ACER concluded the EU has largely displaced Russian pipeline supplies. The EU saw a 55% decrease in Russian pipeline imports during 2022 compared to the year prior, a loss of around 80 billion cubic meters.
Russian flows to Europe have stayed at around 80 million cubic meters/day through Ukraine and the TurkStream pipeline, according to Rystad Energy. Analysts from the firm wrote in a recent note that the EU could still make it through next winter without severe gas shortages if it maintained its cuts in consumption.
ACER also reported that trade liquidity at European hubs like TTF have recovered compared to last year’s levels as the region’s supply outlook becomes more stable. Bourses like the Intercontinental Exchange (ICE) had previously warned the European Union’s price control mechanisms may negatively impact trading and cause traders to flock to less regulated over-the-counter markets.
ACER noted that the mechanism’s “activation thresholds are far from current price levels.” The price of LNG cargoes entering European terminals also “remain lower than hub prices,” with price convergence nearing “pre-crisis levels.”
ICE also reported this week it saw a record 5.7 million TTF futures and options contracts traded during May. It also saw record volume and open interest levels during the month, concluding there is “increasing confidence in the gas markets following last year's gas supply crisis.”
