European Natural Gas Prices Headed for Multi-Year Highs

Europe's leading natural gas price marker is poised for multi-year highs, despite a temporary ceasefire between Russia and Ukraine and increased energy flows through the Strait of Hormuz. The continent enters the Northern Hemisphere winter with Qatari LNG exports absent and storage levels significantly lower than 15-year lows. Dutch TTF futures are trading close to 83 euros per megawatt-hour, the highest point since early 2023.

The brief dip to around 70 euros per megawatt-hour in September was short-lived. Despite Qatari LNG exports not being an issue, European storage capacity is 73% full, which is still a stark contrast to the 15-year average of around 90%. Dutch TTF futures hovered around 67 euros per megawatt-hour in late August, with Goldman commodities expert Samantha Dart predicting prices would need to soar near 100 euros to deter Asia LNG demand and help manage European gas storage levels.

Citi's Maggie Xueting Lin highlights three factors easing Europe's NatGas balance ahead of winter: industrial gas demand decreasing year-over-year by 8%, warm weather, and an unexpected change in Ukraine's role as a net importer to a potential net exporter. Industrial gas demand fell almost 8% in September and is nearly 30% below pre-2022 levels in Citi's six-country sample.

These factors, Lin believes, are contributing to price-driven demand curtailment and challenging the notion that most available cuts have already taken place following the 2022 energy crisis.