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Bearish Drivers

· High European gas storages (95%) ahead of the targeted November deadline.

· Projected “above average” temperatures for remainder of October.

· Low UK domestic gas demand.

· Increased Norwegian injections as production at Kristin ramped up following maintenance.

Bullish Drivers

· Uncertainty of temperature over winter coupled with cessation of gas through Ukraine for Northwest Europe.

· Escalating tensions in the Middle-East amid wider implications of conflict with neighbouring countries.

· Unplanned outages in Norwegian gas facilities during winter period.

Europe is ending the trading year with a sense of confidence, bolstered by gas storage levels at 94% capacity—just slightly below last year’s record high at this time.

Weather forecasts for October predict temperatures above seasonal averages, further supporting optimism. In early September, German Vice-Chancellor and Economy Minister Robert Habeck also expressed confidence, stating, “There is no more shortage of gas, gas storages are full,” referring to Germany’s gas reserves being 96% full as of 23 September. While the situation appears stable, certain market risks remain, which could lead to storage depletion by the end of winter.

One factor that could slightly tighten the market is the cessation of 14 bcm of Russian gas transit through Ukraine next year. While Northwest Europe no longer relies on Russian pipeline gas, the end of this transit in January 2025 may draw an additional 4 bcm of gas from Northwest Europe during Q1 2025 to supply neighbouring countries like Italy, the Czech Republic, Slovakia, and Austria, which still import Russian gas via Ukraine.

Norwegian gas output for Winter 2024 (WIN24) is expected to remain steady at 61 bcm, matching WIN23 levels, driven by strong production from the flexible Troll and Oseberg fields. In contrast, UK and Dutch gas production is anticipated to decline further due to the lack of new fields and field maturation. In the Netherlands, output from remaining fields will continue to decrease following the permanent shutdown of Groningen in October. Meanwhile, in the UK, several companies have paused or halted new UK Continental Shelf (UKCS) projects due to increased energy profit taxation and the removal of tax offsets for investments.

Traders analysis shows that regardless of Russian imports via Ukraine next year, a cold winter would put the market in a difficult position. In a Cold weather scenario, Northwest Europe’s gas storage could fall to just 3% by the end of WIN24 if Russian transit continues, or be completely depleted without it—both scenarios would significantly impact market dynamics. Under the Central scenario, with average weather conditions, storage levels could end winter between 17-24%, which is still uncomfortably low. In either case, the market will need to secure additional supply to struggle back to a 90% capacity rate before the next winter. Only in our Mild scenario do storage levels end WIN24 at a more secure 51-58% of capacity.

Escalating geopolitical tensions in the Middle East pose a significant risk to European gas prices, particularly if the conflict spreads to other key energy-producing countries. The region is a critical hub for global oil and gas supply, and any disruption to production or transportation routes—such as through the Strait of Hormuz—could tighten global energy markets, leading to price spikes. Additionally, increased instability could divert liquefied natural gas (LNG) supplies away from Europe, exacerbating supply concerns as Europe continues to rely on imports to meet its energy needs, especially during winter months.

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