Winter is coming in Europe as geopolitical risks rise - Rystad Energy’s Gas and LNG Market Update

Cold temperatures in the coming days are expected to lead to a short-term rise in gas demand for heating across Europe, marking an early onset of the heating season.
Meanwhile, uncertainty persists regarding the future of European supply via the Ukraine gas transit system in 2025.

Claimed Russian advances in the Kursk region just a few kilometers away from the Sudzha gas compressor station, the sole entry point for the transit of Russian gas to Europe via Ukraine, saw gas prices at the Title Transfer Facility (TTF) rally 7% on 25 September, closing at $12.22 per Million British thermal units (MMBtu), up 6.2% from the previous week.

Meanwhile, Norway reported unscheduled maintenance extensions, leaving Europe short by 78.74 million cubic meters per day (MMcmd).
In South Asia, several tenders emerged at the onset of the monsoon season, while geopolitical tensions escalated in the Eastern Mediterranean Sea following Israeli intervention in Lebanon.

East Asian buyers remain absent, leaving spot assessments for ex-ship delivery into East Asia at $13.065 per MMBtu on 25 September, largely unchanged from the previous week.

Hurricane risk kept the market on edge in North America, with Henry Hub Spot prices reaching $2.637 per MMBtu on 25 September, up 15.5% from a week earlier.

Europe

Following weather forecasts by the National Oceanic and Atmospheric Administration, temperatures below the long-term seasonal averages are expected for Northern and Central Europe.

In populous German federal states, such as Nordrhein-Westfalen and Hessen, temperatures are forecasted to be 4 degrees below the long-term average around 29 September.

The early onset of heating demand raises Rystad Energy’s expectations for near-term gas demand.

Figure 1 shows a heating demand-driven increase in daily household gas demand in Germany of 60.5 million cubic meters (MMcm) on 28 September and 57.5 MMcm on 29 September.

On 19 September, European TTF front-month futures reacted swiftly to Reuters’ report claiming Ukraine’s acceptance of the proposal for the State Oil Company of the Republic of Azerbaijan (SOCAR) to transit Azeri gas via the Ukraine pipeline system to Europe in 2025. 

The news of continued gas flow in 2025 led to a 6.9% drop in TTF gas prices on 19 September, closing at $10.713 per MMBtu, revealing a market consensus of halted flows by the end of the year.

However, Reuters retracted its initial claim in the early hours of the next day, following a clarification by Ukrainska Pravda, the original source for the report.

The denial led to a 5.8% rebound in TTF month-ahead futures on 20 September, closing at $11.335 per MMBtu.

While we regard a gas swap deal between Russia and Azerbaijan as a much-welcomed initiative, the possibility of continued flows hinges upon the willingness of the EU to assume reputational risk.

We therefore assume no supplies of gas to Europe via the Ukrainian pipeline system except for Moldova in our base case for 2025.

Meanwhile, Russian efforts to drive Ukraine out of its territory in the Kursk region have brought claimed Russian advances to within less than 10 kilometers of the Sudzha gas compressor station, the only entry point of the Ukrainian gas transit into Europe, as shown in Figure 2.

Although nominations via Sudzha remain at 42.36 MMcmd for 26 September according to the transmission system operator of Ukraine (GTSOU), fighting near the compressor station may cause new damage to critical infrastructure.

We alert market participants to the possibility of upward price momentum following a further advance of the contact line towards the Russian-Ukrainian border.

Total Russian gas flow into Europe averaged 96.03 MMcmd for the seven days to 24 September, just 1.6% short of the previous week’s average.

As of 24 September, EU gas storage stood at 107.5 billion cubic meters (Bcm), equating to a filling level of 93.9%.

Storage additions have significantly slowed down in September to an average of 0.072 percentage points per day, casting doubt over Europe’s ability to reach 100% filling levels in October.

However, the slowdown in storage additions has primarily been driven by scheduled annual maintenance in Norway.

Norwegian flow nominations returned to 267.3 MMcmd for 26 September, a 21.8% increase over the 219.4 MMcmd recorded a week earlier on 19 September.

Norwegian state-owned pipeline operator Gassco reported delays as several fields and processing plants attempted to leave scheduled maintenance.

At Kastro, Gassco reported an unplanned outage for 25-26 September affecting 50 MMcmd of the planned 72 MMcmd capacity due to startup issues.

Similarly, Gullfaks experienced a minor outage between 23 and 24 September, affecting 5.4 MMcmd of its 15.5 MMcmd capacity.

A smaller unplanned outage on 23 September was also reported at Sleipner (5.1 MMcmd) with an uncertain duration as of 26 September, while an unplanned outage at Asgard (10 MMcmd) was reported for 23 – 30 September due to start-up problems following scheduled maintenance.

Meanwhile, Europe continues to experience reduced flows from Algeria, largely driven by scheduled maintenance at the Medgaz pipeline until 27 September.

Despite averaging 56.34 MMcmd for the week to 24 September, a 19.2% increase over the previous week, they remain 24.3% below average daily flows in August.

Asia
Daily price slumps in Europe, such as those following the redacted Reuters report mentioned above, led to brief instances of arbitrage opening for East Asia delivery of US Gulf Coast LNG over Western Europe.

As shown in Figure 2, a declining freight cost differential of Tokyo delivery over Milford Haven for November delivery largely contributed to the narrowing of the arbitrage window in August.

However, while the arbitrage window remains otherwise closed, Figure 2 indicates an upward trend fueled by continuous gas-for-power demand in South and East Asia, which may lead to a permanent arbitrage reopening in the coming weeks.

East Asia continues to experience above-average temperatures.

The Japan Meteorological Agency reports a more than 70% probability for above-normal temperatures across Japan between 28 September and 4 October.

Similarly, the Korea Meteorological Administration reports a 60% probability for above-average temperatures between 30 September and 6 October, keeping the short-term gas-for-power demand in the region elevated.

LNG inventories held by major Japanese utilities fell to 1.64 million tonnes (Mt) as of 22 September, down from the 1.88 Mt reported on 15 September.

The 12.8% decline brings inventory levels on par with figures reported at the end of September last year, yet 17.6% below the five-year average.

Although spot buying has been rather muted recently, cooling needs will continue to drain inventories through heightened gas-for-power demand.

This may bring Japanese importers back to the spot market, as Japan's largest power generation company, Jera, is rumored to have already secured spot deliveries for the winter months in the past few days.

Demand remains elevated in South Asia, where the beginning of the monsoon season raises gas-for-power demand due to lower hydropower output.

The demand increase reflects on the market as Thailand’s state-owned PTT was seeking two cargoes for October, while Bangladeshi company Rupantarita Prakritik Gas (RPGCL) reissued a tender and now seeks two cargos to be delivered in mid to late October.

Also in Bangladesh, the Summit LNG floating storage and regasification unit (FSRU) based import terminal, which has nameplate capacity of 3.8 Mtpa, received its first cargo since May, following repairs to damage caused by Cyclone Remal.

Bangladesh experienced record levels of LNG imports in May of this year with 0.66 Mt. Vietnamese state-run company PetroVietnam Gas issued a smaller tender for October delivery of 10,500 tonnes of LNG, while Pakistan may turn to Russia in search for future LNG supplies.

This week, China announced a series of stimulus measures aimed at propping up the property sector and the wider economy by lowering a significant short-term interest rate and reserve requirements for Chinese banks.

Specifically, it is lowering the required reserve ratio (RRR) by 0.5 percentage points.

Counteracting the threat of widening economic stagnation, the Governor of the People’s Bank of China, Pan Gongsheng, further suggested a 0.2 to 0.25 percentage cut in what is rumored to be either the one- or five-year loan prime rate, which could lead to increased gas demand potential in the longer term

Geopolitical risk has risen again, following an extended Israeli military operation in Southern Lebanon.

A widening conflict raises the potential for sea route disruptions and reduced gas production in the region, with ripple effects for global LNG and affected regional gas markets.

Lastly, our tracking data shows that the LNG vessel Pioneer, which loaded cargo at the sanctioned Russian Arctic LNG 2 facility earlier in August, emerged into the Gulf of Suez after passing the Suez Canal.

We expect the vessel to continue its journey toward possible offtakers in Asia via the Red Sea.

US

US Henry Hub gas prices rose 3.8% to $2.434 per MMBtu on 20 September following the initial formation of a tropical storm in the Northwest Caribbean Sea, which has strengthened into a hurricane and is expected to make landfall in the Gulf of Mexico region.

This has led UK supermajor Shell to halt production at its Stones and Appomattox platforms, evacuating non-essential workers from assets in the Mars corridor, while US supermajor Chevron has also begun to evacuate personnel in the Gulf of Mexico.

On 23 September, prices at the Louisiana Henry Hub climbed another 7.2%, to $2.613 per MMBtu.

However, updated assessments by the National Hurricane Center indicate that the storm, which has now strengthened to Hurricane Helene, would move eastward toward Florida.

Nevertheless, fear of curbed output saw Henry Hub spot prices rise 15.5% on 25 September, closing at $2.637 per MMBtu, the highest daily close since 27 June 2024, as no changes for liquefaction are met with slightly curbed production expectations.

While current price levels are driven by short-term supply concerns, Shell and Chevron noted in their earlier statements that evacuations ahead of Hurricane Helene would not affect production levels.

Hurricane Francine, however, which made landfall in the Gulf of Mexico on 11 September, led to curbed production for both producers across numerous assets and platforms.

Meanwhile, Shell reported a ramp-up at Appomattox and initiated similar processes at Stone.

Other producers, such as Norwegian oil and gas major Equinor or US independent LLOG reported shut ins prior to the landfall of Hurricane Helene.

On aggregate, US natural gas dry production for the week ending 18 September stood at 101.2 billion cubic feet per day (Bcfd), 0.3% lower than the 101.5 Bcfd recorded the previous week, indicating only minor Hurricane impact on total output levels.

Working gas storage levels in the lower 48 states rose by 58 Bcf to 3,445 Bcf for the week ending 13 September, as reported by the US Energy Information Administration (EIA) on 19 September.

While standing 6% above levels in the previous year, and 8.6% above the five-year average, we note a slowdown in the pace of injections in recent weeks.

While net changes over the summer months in weeks 13 – 37 amounted to 1,305 Bcf in 2023, storage injections for the same period in 2024 are 12% lower at 1,149 Bcf.

Over the summer months between the weeks ending 7 June and 30 August, net storage additions were 33.2% below the previous year's figures.

Furthermore, unlike in 2023, week 14 of 2024 marked an instance of net withdrawal for a reported week during summer.

As of 24 September, US feedgas declined 4.8% week-on-week to 12.28 Bcfd, largely driven by scheduled maintenance at Cove Point since 20 September.

The LNG terminal, near Lusby, Maryland, is scheduled to resume operations on 11 October.

Warmer-than-average temperatures have added further pressure on the demand side, with the National Oceanic and Atmospheric Administration forecasting higher temperatures in the Pacific and Mountain regions.

This is expected to lead to higher gas-for-power demand in those regions through early and mid-October, respectively.

Meanwhile, temperatures are also expected to rise in the South-Central region at the end of September.