Global natural gas market may experience a tighter supply-demand balance this winter

The last two winters in the Northern Hemisphere were exceptionally mild, keeping global natural gas markets well supplied and balanced at relatively low prices. Prices going into this winter are only slightly higher than last year at the same time based on current forward natural gas and liquefied natural gas (LNG) prices in Europe and Asia. If weather remains mild this winter as in the past two winters, we expect a relatively stable global supply-demand balance with prices similar to the previous two winters. But if Europe and Asia experience colder temperatures this winter than in the past two years or other operational and market risks materialize, global supply-demand balances could tighten, leading to elevated natural gas prices and potential price spikes.

Several issues could affect global natural gas balances this winter:

• LNG supply growth. We expect limited LNG capacity additions to come online this winter, mostly in the United States.

• Shifts in pipeline flows. Less natural gas could be supplied by pipeline to Europe if the Russia-Ukraine natural gas transit contract set to expire at the end of 2024 is not renewed.

• Operational issues. There could be delays in the start-up of new projects, issues with availability of natural gas feedstock for exports, unplanned outages at LNG export facilities, and geopolitical events that could alter LNG trade flows, potentially reducing available supply.

• Below normal temperatures. A cold winter with sustained, lower-than-normal temperatures in one or more regions in the Northern Hemisphere could occur as El Niño changes to La Niña this year. This change in climate patterns may increase natural gas demand, creating competition for spot LNG supplies between Europe and Asia. Colder weather in the United States could reduce storage inventories and increase U.S. domestic Henry Hub prices, affecting LNG export prices from the United States. Other LNG import markets, including Brazil and Egypt, could also increase LNG demand, intensifying competition for spot LNG among regions, further tightening balances.

• Power generation. Issues related to electricity supply could affect demand for LNG as a fuel source for power generation, such as nuclear availability and restarts in Europe and Asia, renewable energy output, and fuel availability and costs to power stations, which affect dispatch economics.

In 2024, LNG front-month futures prices continued to decline and remained consistently lower than in 2022 and 2023. This year, global natural gas prices at key benchmarks in East Asia (JKM) and in Europe at the Title Transfer Facility (TTF) decreased by more than 50% compared with 2022 and by more than 20% compared with 2023, according to data from Bloomberg Finance, L.P.

So far this year (January–October), JKM prices in East Asia averaged $11.47 per million British thermal units (MMBtu), and TTF prices in Europe averaged $10.37/MMBtu. Natural gas prices have continued to decline this year mainly in response to high inventories in Europe, less natural gas consumption, and relatively stable global natural gas supplies. Current forward prices at TTF and JKM for the upcoming winter average around $15/MMBtu.

We expect limited LNG capacity additions to come online this winter. Most of the new LNG export projects are in the United States, including the first of seven mid-scale trains at Corpus Christi LNG Stage 3 (an expansion of the existing Corpus Christi LNG facility), Plaquemines LNG Phase 1 (consisting of 18 mid-scale trains), and additional capacity at Freeport LNG achieved through engineering and operational optimization. The combined nominal capacity of these U.S. LNG export projects is 1.7 billion cubic feet per day (Bcf/d). However, during the initial start-up phase, new LNG export projects operate below nominal capacity and require several months to reach full production.

Other markets are also adding LNG export capacity. In Mexico, a new LNG export facility on the east coast—Fast LNG Altamira—shipped its first cargo in August 2024 and reached full production capacity in October. A new LNG export project offshore Senegal and Mauritania is on track to start LNG production by the end of 2024. After shipping several cargoes, Russia’s Arctic-2 LNG export facility shut down in October mainly because of sanctions and may not produce LNG during the upcoming winter.

During the past two winters spanning 2022–23 and 2023–24, exceptionally mild weather reduced heating demand in both Europe and Asia. In both 2023 and 2024, Europe ended the winter heating season with record storage inventories. In 2024, the European Union (EU) extended coordinated demand-reduction measures through March 2025, aimed to reduce natural gas consumption by at least 15% on an annual basis compared with the average during the previous five years (from April 1, 2017, to March 31, 2022). Since these policies were implemented starting in 2022, natural gas consumption in the EU declined by more than 15% in both 2023 and 2024 compared with the five-year (2017–22) average.

In Asia, a decline in Japan’s LNG imports last winter was more than offset by increased LNG imports into China following China’s post-COVID economic recovery. South Korea’s LNG imports remained relatively flat over the past several winters since 2020.

Natural gas storage inventories in Europe are near-full ahead of winter 2024–25, while increased LNG imports in Asia amid mild temperatures in September and October may indicate a rapid refilling of inventories. Natural gas storage inventories in the EU as of October 31, 2024, were 95% full. Since the EU enacted policies requiring storage operators to maximize storage injections during the refill season, the EU’s natural gas storage inventories have been full ahead of the winter heating season in both 2023 and 2024.

Storage capacity in East Asia is mostly limited to above-ground cryogenic storage tanks co-located with LNG import (regasification) terminals, and it helps meet seasonal peaks in demand. LNG inventories in Japan and South Korea were relatively low at the end of this past winter heating season but remained close to 2023 peak levels in subsequent months. In China, where natural gas storage capacity can meet about 12% of the country’s annual natural gas consumption, record LNG imports from August to October 2024 may indicate strong refill of storage inventories ahead of winter. In the United States—the world’s largest LNG exporter—storage inventories were close to maximum volumes as of November 8, exceeding last year’s inventories by 3%.

U.S. LNG exports will continue to help balance global natural gas markets this winter. The United States became the world’s largest LNG exporter in 2023 and will be the key supplier to global LNG markets. In our November 2024 Short-Term Energy Outlook, we forecast that U.S. LNG exports will average 13.7 Bcf/d in the 2024–25 winter, 8% (1.0 Bcf/d) more than in the previous winter as new and expanded projects come online in the next several months. Potential project start-up delays or other technical issues may affect our forecast.

A colder winter could lead to high storage draws and lower storage inventory in the United States this winter, increasing domestic Henry Hub prices, which in turn would affect U.S. LNG export prices. Operational issues such as unplanned maintenance and/or production freeze-offs could affect both export volumes and prices at U.S. LNG facilities and raise international LNG prices.

One or more regions in the Northern Hemisphere may experience colder winter temperatures this year, as weather models point to a possible shift from El Niño to La Niña. Weather models indicate the likelihood of the formation of La Niña, which is generally associated with colder, drier weather in much of the Northern Hemisphere during the winter. The European Centre for Medium-Range Weather Forecasts predicts a colder winter in Northwest and Central Europe. The last two winters were exceptionally warm, contributing to relatively low natural gas consumption in Europe, higher end-of-season storage inventories, and lower natural gas prices.

As in the previous two winters, countries in Europe will continue implementing natural gas conservation measures and importing LNG supplies to replace natural gas pipeline imports from Russia. EU countries reduced natural gas consumption by 18% from August 2022 through March 2023. In the first eight months of 2024, the EU’s natural gas consumption declined by 22% relative to the average consumption between April 2017 and March 2022.

EU countries expanded LNG import capacity by more than one-third between 2021 and 2024 and expect more regasification capacity expansions this winter. We estimate regasification capacity to expand in Germany, Italy, Greece, and Poland by a combined 3.5 Bcf/d by January 2025.

The potential expiration of the Russia-Ukraine natural gas transit contract at the end of December could reduce natural gas pipeline flows into Europe. After declining by more than 40% in 2022, Russia’s pipeline exports to the EU via the sole remaining route transiting Ukraine consistently averaged 1.2 Bcf/d to 1.4 Bcf/d in 2023–24. Imports by pipeline from Norway and North Africa have limited potential for growth. Europe would have to offset the further loss of Russian supply mainly by importing more LNG and drawing down natural gas in storage. The European Network of Transmission System Operators for Gas (ENTSOG) estimates in its Winter Supply Outlook 2024–25 that without Russian supplies Europe would exit the winter heating season with storage 40% full under a normal winter scenario. Storage would be just 11% full under a cold winter scenario, assuming LNG supplies remain at levels similar to the past two winters, and 26% full, assuming higher LNG supplies than in the previous two winters.

Should the weather turn out colder than the previous two winters in Europe, and should Asia also experience a colder winter, the global supply-demand balances will tighten given the limited incremental LNG supply coming online.

LNG consumption in East Asia, particularly in China, remains a key uncertainty this winter with potentially large implications for global supply-demand balances. LNG consumption in Japan–the world’s second-largest LNG importer–has declined every winter during the past four winters. Japan’s consumption fell by 18%, or 2.7 Bcf/d, between the winter of 2020–21 and 2023–24. We do not expect a reversal of this trend. LNG imports in South Korea—the world’s third-largest LNG importer—have been relatively flat, varying by 0.2 Bcf/d to 0.5 Bcf/d during the past four winters.

China—the world’s largest LNG importer in 2023—imports LNG using long-term contracts and spot market arrangements. China’s regasification capacity is set to expand by 2.8 Bcf/d this winter, mostly in southern China, which is not directly affected by winter demand patterns.

This year, China’s LNG imports during low seasonal demand in September and October set all-time monthly records, which could indicate LNG stockpiling ahead of the upcoming winter. China increased its pipeline imports by 1.0 Bcf/d (15%) in January–September 2024 compared with the 2023 annual average.

This increase came mainly from Russia via the Power of Siberia 1 pipeline, which continues to ramp up to full production, with a target to reach 3.7 Bcf/d in export flows by 2025. Should China experience a colder-than-normal winter, it could substantially increase LNG imports, as was the case in the winter of 2017–18, further tightening the global supply-demand balance. If Europe also experiences a colder winter, buyers in Europe would have to compete for spot LNG cargoes, which in turn would raise prices at both European and Asian price hubs, especially if fuel switching is not possible.