Europe avoids 'severe' gas price volatility in Q3 despite supply uncertainty: ACER

Europe avoided "severe" gas price volatility in the third quarter of 2024 despite the re-emergence of supply uncertainties, European regulatory body ACER said Oct. 22.

In its latest quarterly market monitoring report, ACER said wholesale gas prices rose in Q3, but remained less volatile than last year due to increased Norwegian supply, healthy storage levels, and low demand.

"Continued tepid European demand acted as counterweights to a tighter global LNG market due to rising global gas demand, geopolitical tensions and the growing precariousness of residual imports of Russian gas transited via Ukraine," ACER said.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price at an average of Eur35.58/MWh in Q3, up from Eur31.69/MWh in Q2.

Household demand was stagnant and industrial demand saw a modest increase during the quarter, though the latter was outweighed by a reduced call on gas-fired electricity generation.

As a result, overall EU gas demand was slightly lower than in 2023 -- a reduction of around 69 TWh -- and well below pre-crisis levels.

Renewables continued to displace gas generation. Increased renewables output lowered carbon emissions, loosened the EU gas demand-supply balance and reduced instances of gas setting marginal prices in power markets, according to ACER.

Storage withdrawals

The regulatory body also said European storage facilities were close to nominal capacity as the gas summer finished. Injections over the quarter amounted to 204 TWh, marginally lower on the year.

"The market signal to store gas -- the summer-winter spread -- was positive, consistent but not particularly strong over the quarter," ACER said.

However, it warned that if gas withdrawals this winter "significantly" exceeded levels seen in previous years, the EU may face increased competition in LNG markets for 2025, potentially driving up wholesale gas prices.

While several LNG production projects are under construction, major new LNG volumes are expected only from 2026 onwards.

EU LNG imports were at their lowest in Q3 since the last quarter of 2021 despite improved global LNG production. The EU share of the global LNG import market shrank to 18%, from 24% in Q3 2023.

"While demand from other LNG importing regions increased, an otherwise balanced European gas market saw EU buyers shy away from competing for higher priced spot cargoes," ACER said.

Russian LNG had a higher year-on-year share of the EU's total LNG imports in the first three quarters of 2024 -- at 20% compared with 14% in January-September 2023.

The US remained the main LNG supplier, with a 45% market share, unchanged on the year.

Gas tariffs

ACER also warned of the potential impact of higher transportation tariffs on cross-border trade and market integration. It said gas transmission tariffs had been rising in some EU countries, with more increases expected in the near term.

This, it said, warranted monitoring of the effects of tariff changes on cross-border trade and market integration.

Various factors have contributed to the upward tariff trend, including an over 25% drop in EU demand since 2021, which has led to lower cross-border gas flows.

A moderate increase in "allowed revenues" -- driven by selected new investments to diversify supply away from Russia -- also contributed to tariff increases, as did accelerated revenue recovery in certain systems in anticipation of a potentially steeper decline in demand.

Looking ahead, ACER said declining final consumption and ongoing decarbonization efforts would likely see the use of gas networks decrease further, which may increase tariffs.