While US gas prices continue to trade mostly sideways, European and Asian prices appear to be picking up due to tightening supply into Europe and increased demand in Asia.

In Europe, the front-month Title Transfer Facility (TTF) contract saw a sudden 12% spike on 25 September, primarily driven by repeated and extended outages in Norway, particularly at the Troll and Skarv fields.

Despite the high storage levels in Europe, the combination of tightening supply and growing Asian demand may force Europe into outbidding Asian importers.

A resolution for Chevron’s strikes had already been priced into the market and did not put sufficient bearish pressure on gas prices to offset the impact of extended outages in Norway.

Meanwhile, China has been steadily increasing its LNG and coal imports throughout the year, supported by positive industrial production numbers in August which could challenge previously bearish narratives.

As a result, LNG delivery prices to northeast Asia reached a six-month high.

Europe
In Europe, storage levels are currently 94.68% full, approaching the 95% target. Russian pipeline flows increased 5.4% week-on-week, reaching 98.03 million cubic meters per day (MMcmd) as of 23 September.

Norwegian pipeline flows surged 45.65% week-on-week, reaching 257.80 MMcmd as of 25 September, primarily due to planned heavy maintenance coming to an end.

However, extended and repeated outages, particularly at the Troll and Skarv fields, have disrupted the supply side, resulting in a 12% price increase in the front-month TTF contract on 25 September.

Currently, 25 MMcmd is affected at the Troll field due to process problems, with possible delays on the table.

At the Skarv field, the entire capacity of 22.1 MMcmd is affected, and production is expected to resume on 8 October.

This week, Russia implemented a temporary ban on gasoline exports, with the exception of low-quality diesel and marine fuel, to all countries except four former Soviet states.

Russia’s decision coincides with the ongoing planned and extended outages in Norway, adding further pressure to the supply side as certain refineries who may have depended on Russian diesel could turn to gas instead. Additionally, Europe’s largest gas field, at Groningen in the Netherlands, is scheduled to permanently cease production on 1 October, as announced by the Dutch government.

The level of futures curve reflects the average price of all three contracts at each date, while the slope of the futures curve – not to be mistaken with the Brent oil slope – represents the difference between the December and October 2023 contract.

The tightening supply situation in Europe is evident through the flattening futures curve, indicating a decreasing slope.

We expect the slope to rise, putting downward pressure on TTF prices as Norwegian maintenance concludes and production ramps up.

However, current storage levels in Europe are sufficient for about three months, and if the tight supply persists, Europe may find itself needing to outbid Asian importers, given the increased demand in this region.

Asia
The Chevron strikes in Australia were resolved last week, alleviating some uncertainties in gas markets.

While one would expect this to exert downward pressure on European and Asian gas prices, the Front-Month TTF instead reacted by spiking 12% on 25 September.

We believe the market had already priced in the strike resolution, and this price hike was primarily driven by supply risks in Europe.

However, gas demand is picking up in Asia, particularly in China.

In August, industrial production in China increased by 4.5% year-on-year, exceeding market expectations of 3.9%.

Notably, the extraction and natural gas sectors experienced a production increase of 7.2% versus market consensus of 4.2%.

Figure 3 illustrates that coal and LNG imports to China have been steadily increasing throughout the year.

We expect that Chinese energy demand is likely to recover in the second half of the year with the ongoing industrial gas demand recovery and lower LNG prices compared to last year.

More natural gas and coal will be needed to fulfill the recovered demand. LNG delivery prices to northeast Asia have reached a six-month high, surpassing $14/MMBtu.

US

In terms of US gas storage, there was a buildup of 64 Bcf for the week ending 15 September, compared to 103 Bcf during the same period last year, and also higher than the 57 Bcf injections in the preceding week.

These storage levels are also 184 Bcf above the five-year average. As of 21 September, week-on-week total natural gas consumption in the US declined by 6.7%, with a more significant decline of 12.7% in power generation.

This is mainly driven by lower temperatures across the US.