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Bearish Drivers

· Storages refilling on track to be full ahead of the start of heating season.
· Continued weak power sector demand, exacerbated by forward curve above the minimum CSP.
· Further weakness in the Eurozone manufacturing sector.

Bullish Drivers

· Extensions to planned NCS works slowing injections rates, notably Karsto.
· Despite both sides seeming intent on keeping the gas flowing, damaged infrastructure at Sudzha remains an elevated risk.
· Middle East geopolitical uncertainty.

Market prices throughout August rose in its most significant rise seen during 2024. This was caused by two main factors; geopolitical Risks: There’s a risk premium in the market due to escalating tensions in the Middle East, with concerns about a possible retaliatory strike on Israel from Iran. Additionally, in the Kursk region of Russia, a surprise Ukrainian incursion has raised fears about the security of the gas supply. This incursion included the capture of the Sudzha metering station, a critical transit point for Russian gas flowing into Europe. Although gas has continued to flow since the station was seized last Thursday, there’s growing concern about potential damage to the infrastructure, which could halt the flow. Despite one administrative building being destroyed, the pipelines remain intact. The news of this situation caused gas prices to spike to fresh yearly highs. The loss of approximately 42 million cubic meters per day of gas would hinder storage restocking and force buyers to enter the spot market to replace these volumes.

Fundamentally, the UK market has been relatively loose, with low consumption and strong renewable generation allowing for storage injections and exports to balance the system. Before these geopolitical tensions, prices were averaging around 75p/th in July; now, they have risen to 94p/th, reflecting market concerns about the risks ahead.

Global Impact: Similar to other global markets, the JKM (Japan-Korea Marker) has increased by 8% in August, driven by the escalating tensions in the Middle East and unexpected developments in Ukraine, which have led Asian prices to follow European trends. JKM prices were averaging $12.37/MMBtu in July and early August but have now reached yearly highs of $14/MMBtu for the M+2 price. Some of this increase is also due to higher temperatures in Japan and South Korea, which have reduced storage levels and increased spot demand. However, this demand is somewhat tempered by the current high prices, which are discouraging purchases from price-sensitive buyers in China and India.

In September, we don’t expect much downside potential from a fundamental perspective until later in the month, primarily due to reduced supply caused by extensive NCS maintenance, which is slowing down storage injections. The main bullish concerns revolve around ongoing uncertainty regarding Russian gas flows through Ukraine and escalating tensions in the Middle East.

On the supply side, Norwegian production is forecasted at 230 million cubic meters per day (mcm/d), which is 99 mcm/d lower than the previous month due to significant maintenance.

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