HomeNewsEIA Report Warns of Tighter Global Natural Gas Supply This Winter

EIA Report Warns of Tighter Global Natural Gas Supply This Winter

11/27/2024

Global natural gas markets could face tighter supply-demand balances this winter, according to an EIA report released on Nov. 25. The last two winters in the Northern Hemisphere were mild, keeping supply levels high and prices relatively low.

This year, forward prices in Europe and Asia are slightly higher, but if mild weather persists, the market may remain stable with prices similar to those of the past two winters. However, colder weather, operational issues, or geopolitical risks could lead to price hikes and tight supply conditions.

Several factors could influence global natural gas balances this winter:

  • LNG Supply Growth: The EIA expects limited growth in LNG capacity this winter, mostly from the U.S.
  • Pipeline Flow Shifts: The expiration of the Russia-Ukraine natural gas transit contract at the end of 2024 could reduce pipeline gas flows into Europe.
  • Operational Issues: Delays in new projects, feedstock shortages, unplanned LNG export outages, and geopolitical risks could disrupt supply.
  • Cold Winter Risks: A shift from El Niño to La Niña could bring colder temperatures, increasing demand and competition for LNG between Europe and Asia.
  • Power Generation Issues: Variations in nuclear availability, renewable energy output, and fuel costs could also affect LNG demand for electricity generation.

In 2024, LNG futures prices dropped significantly compared to the previous years. Bloomberg Finance data shows prices in East Asia (JKM) and Europe (TTF) fell by more than 50% from 2022 and over 20% from 2023. From January to October 2024, JKM averaged $11.47/MMBtu and TTF averaged $10.37/MMBtu, primarily due to high European inventories, low consumption, and stable supply.

While the U.S. is adding LNG export capacity, such as the Corpus Christi LNG Stage 3 and Freeport LNG expansions, most projects are expected to come online below nominal capacity initially. Other countries like Mexico and Senegal are also increasing LNG export capacity. However, Russia’s Arctic-2 LNG facility shut down in October 2024 due to sanctions and may not contribute this winter.

The past two winters saw mild weather, which helped Europe maintain high storage levels. The EU reduced gas consumption by over 15% in 2023 and 2024 through demand-reduction policies. In Asia, Japan’s LNG imports decreased, but China’s imports rose as the economy recovered from COVID-19.

Natural gas storage in Europe is nearly full, with 95% capacity as of October 31, 2024. In Asia, LNG inventories remain low, but China’s strong imports may indicate a quick refilling. U.S. inventories are also close to full, exceeding last year’s levels by 3%.

Looking ahead, U.S. LNG exports will remain a key supply source, and the country is expected to export 13.7 Bcf/d during the 2024-2025 winter season. However, colder weather could draw down U.S. storage, driving up domestic prices and affecting LNG export prices. Operational issues could also reduce LNG supply and raise prices internationally.

If temperatures drop significantly, LNG supply could tighten, especially with limited new LNG supply and reduced Russian pipeline flows. The EU’s reliance on LNG imports will grow, and any supply shortfalls will likely lead to competition between European and Asian buyers, raising prices at key hubs.

China, the world’s largest LNG importer, has increased its imports by 1.0 Bcf/d through 2024 and may ramp up further if the winter is colder. Japan’s LNG imports are declining, but South Korea’s imports have remained stable. The situation in China and a potential cold winter in both Europe and Asia could lead to significant price increases and tighter global supply-demand balances.

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