Traders on alert: What lies ahead for European gas this winter?

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Eklavya Gupte:

Welcome back to Energy Evolution, a Platts podcast by S&P global Commodity insights where we dive deep into the energy stories shaping our world today. I am your host, Eklavya Gupte, and in this episode we're diving into the complexities of the European gas market as we gear up for the upcoming winter season where the landscape is particularly complex influenced by host of factors including geopolitical tensions, regulatory changes, and the evolving supply dynamics. So, to start off, let's picture this. You're a gas trader in Amsterdam. It's early October, and you are staring at your screen wondering how high could prices actually go this winter? Are we talking about a repeat of those eye-watering spikes we saw a few years back or are we in for something completely different? But here's the thing, this isn't your typical winter prep. We're looking at gas storage levels across the EU that aren't quite where some would like them.

The supply-demand fundamentals point to a somewhat mixed picture, and the ongoing geopolitical tensions are keeping everyone on edge. And here's the kicker, Europe's first full winter season operating without that Russian gas safety net we used to rely on. So, joining us today, we have Matt Hoisch, senior reporter on the gas and LNG news team, and Roudy Dirani, managing editor of the European Natural Gas Pricing Team to help us explore critical questions around supply, demand, price spikes, geopolitics, and more. So, let's go straight into that discussion. Roudy. Matt, welcome to the Energy Evolution Podcast, and I should also say welcome to the European Winter gas season, which runs from October 1st to the end of March.

Roudy Dirani:

Dare I say a brr o'clock.

Eklavya Gupte:

So, to start off with, let's go with gas storage. Now I know gas storage is crucial in shaping prices across the EU, and Brussels has recently updated some of its storage rules to enhance some flexibility. So, as we head into winter, how does the current state of gas storage compare to previous winters?

Roudy Dirani:

So, yeah, hey, Eklavya, good to be here. As we are speaking now, the last data that we get on storage is from September 16th, is that we are at around 81% overall on the EU level. So, broadly speaking, this is a good level, but we are still below the levels we saw in the years post the energy crisis. Why is that? It's mainly because had the first mild winter or the normal winter since the energy crisis, that put a lot of pressure on our storages. So, we saw a lot of withdrawals that pushed our storages to be at around 33% by the end of the winter, which put a lot of pressure basically on the summer season for us to inject more.

And this basically forced a lot of players to look to inject more into our storages, but financially it wasn't viable. And why is that? It's because our summer prices were above the winter prices that was due to the regulations, but by the EU that we had to reach some certain targets by the end of the summer, which put an upward pressure on summer prices versus winter prices. These regulations were then made more flexible and we're going to touch upon this, which allowed for more injections to go into those storages and reach those comfortable levels as we speak now.

Matt Hoisch:

Yeah, and it's funny, Roudy, like you're saying, there is this big kind of regulatory pivot from the EU. And I mean to put it in context, like Roudy said, as of mid-September, we're around the low eighties compared to the same time the last two years we were closer to the low nineties. So, there is a deficit, but it is an increasingly shrinking deficit. And I think if we'd had this conversation, let's say in mid-August, or even in mid-July, there would've been probably a lot more concern about what the storage situation would mean for European gas prices. I know the more that I talk to market participants, storage is less of a concern. So, in the past few years, there was this really firm target from the EU to hit 90% of storage come November 1st. And that led to a bit of craziness in the market the past few years because buyers and sellers saw that as something the EU would do whatever it had to make that a reality.

So, you saw some really intense price movements. There was this effort earlier in the summer from the EU to essentially ease those targets somewhat and that ended up passing and actually formally went into effect in early September actually. And so under those new targets, essentially that 90% target is still there, but the EU has made it more flexible rather than, you must hit this by November 1st, you're allowed to hit it between October 1st and December 1st, so a wider window. But crucially, there's also this other flexibility that more or less allows member states to fill to 80%. Really it's a more flexible target, and under extreme market conditions they can even go as low as 75%. But Roudy, I'm wondering if you can also maybe comment on what you're hearing from the market about where does this storage situation put us in terms of the EU's ability to weather, pun intended, the coming winter.

Roudy Dirani:

As you mentioned, broadly speaking, the sentiment is more bearish than it used to be a few months back, thanks to more flexibility around the regulation of those targets. But we're still lagging behind last year, which means that we're losing flexibility when it comes to responding to cold spikes. And it's important to say that it's the first winter where we're going to enter fully without any Russian pipeline going through Ukraine. So, the only Russian gas that's coming to Europe is through the TurkStream pipeline at the moment. Whereas last year we had Q-Four where we still received gas through Suja, which gave more flexibility to central eastern European markets to respond to cold snaps, whereas it's a different picture for the whole of this winter now.

Eklavya Gupte:

So, Roudy, obviously you mentioned the lack of Russian gas and obviously that's been a significant development over the past year where the EU is pivoting away from Russian gas and now how is that transition progressing?

Roudy Dirani:

The main concern is, okay, what's the weather going to look like coming into the winter? This loss of flexibility, this loss of pipeline flows through Suja represent 42 MCM per day that's lost. So, maybe half a cargo per day, so maybe around 12 cargoes per month, which is how much Germany imports. So, there's definitely a concern regarding that lack of flexibility, especially for central Eastern European markets which are now trading at much higher premiums against the TTF compared to what we've seen last year. And they'll have to rely basically on expensive imports from Germany, from Poland to basically fill that gap. So, there's a big concern regarding volatility and I would say much more on the eastern European side compared to Northwest Europe.

Matt Hoisch:

And we should say that that concern on that Eastern central European side is largely also due to the fact that countries like Hungary, Slovakia, these are the countries that are still getting large amounts of Russian pipeline gas via the TurkStream pipeline coming into their gas supply. So, while the amount of Russian gas coming into the EU through LNG, through pipeline has decreased in recent years, it's by no means at zero. And I think one of the key developments to keep an eye on is going to be over the coming months, this determination from the European Union to formalize a proposal from the European Commission to more or less ban the imports of Russian oil and gas in a few years time. And I'm being actually intentionally vague about that because we had this proposal from the European Commission back earlier in the summer that proposed a phase-out of these fuels that would by the end of 2027, see them banned from the EU.

And in recent weeks there has been rumblings from EU officials, also from US officials. The US is a major supplier of LNG to the EU to potentially speed that up and see a quicker phase-out. Now that is going to be really interesting because whatever price impact we see from a potential phase out, full phase out of Russian gas and LNG is very dependent on the timing because you have new supplies of gas, new supplies of LNG coming online over the next two years, and when that phase out lines up with those new supplies will determine how tight or not tight the market becomes if and when Europe permanently turns away from Russian gas and LNG.

Eklavya Gupte:

Thanks, and I wanted to move to price here very quickly before we move to geopolitics. Obviously last year we saw prices in the winter go almost as high as 60 euros megawatt hour, so it'd be interesting to see what are the forecasts amongst analysts.

Roudy Dirani:

I mean, I can give you a broader overview of what the market thinks and it's very hard to pinpoint what the highest point can be. We are currently in the low thirties as we speak, so we're nearing a support level on prices on the curve. So, what traders are looking for are a sequence of bullish events like maintenances in Norway, maintenances in the US for LNG exports facilities, a La Nina, a phenomenon which currently some reports show that there's a higher probability of that happening and all of that could push prices very high.

Matt Hoisch:

And it is important to underscore, Eklavya, you said before we get to geopolitics, but I think the funny thing is how much gas prices and geopolitics are so entangled nowadays. This is the first winter without this, full winter without this major flow of Russian pipeline gas through Ukraine that got cut off January 1st, but that was a big bit of information that really shifted prices last year. So, if you do look at these price graphs, you see this kind of mountain like peak come, it was around February last year, prices hitting around 60. That I think is a crucial difference between this winter and last winter is that we're not expecting that kind of a supply shock at the moment. People are pretty vigilant for a lot of black or even gray swan events because exactly. Well, like you mentioned, storage is at 80 something percent, which is within targets, but it is leaving a bit less wiggle room, so to speak.

Roudy Dirani:

It's funny because a trader I was talking to was telling me, "Okay, the broader sentiment is bearish", but everyone is counting on the fact that everything goes well. Everyone's counting on the fact that you know, the new LNG capacity that's going to come online in 2026 is going to come online on time. There's not going to be any delay and the winter is going to look fine, but there's a lot of potential for an upside.

Eklavya Gupte:

Great. No, very interesting. And obviously now going back to geopolitics, this market has been extremely volatile over the last few months or years. How is it responding to these geopolitical developments?

Matt Hoisch:

I do think a really interesting thing recently has almost been the lack of responsiveness to geopolitics. As such we see jumps or troughs, but then everything seems to kind of return at the moment as we're talking mid-September, we're kind of range-bound in this low to mid-ish 30 euros per megawatt-hour range in TTF world. And I'll maybe jump to two moments that stick out for me geopolitically. One really interesting thing we saw was, for instance, back in June during the Israel-Iran conflict, we did see TTF respond.

It spiked up to something like the low 40 euros per megawatt-hour, but then quickly subsided after the conflict de-escalated. We did not see a protracted impact from that. And then on the converse side, we saw prices dip somewhat more recently in mid-August when Trump and Putin met for their summit in Alaska, there was chatter about a potential Ukraine ceasefire agreement, which would of course be bearish for prices if it did materialize. We saw TTF go to a twelve-month low and then it has since recovered. So, I feel like we're seeing jittery responses to geopolitics, but nothing seems to really last that long. I mean, Roudy, do you see it differently?

Roudy Dirani:

No, definitely. Definitely. I totally about what you're saying. And we also saw this big spike when at the height of the conflict between Israel and Iran, and many traders were telling me, "Okay, prices are going to fall again because it's not going to impact fundamentals", and that's what happened. So, from one point of view, it looks like the market is just forgetting or brushing off those wars. From another perspective in terms of balance, Europe is doing well, so it can absorb those shocks.

Matt Hoisch:

With that said, I do think one thing that I know I'm going to be keeping an eye on from the news side of things is of course the ongoing Russia-Ukraine war, particularly the fact that in recent weeks we've seen an increasing number of strikes on bits of energy infrastructure, which as of now have not led to anything absolutely catastrophic on the gas side. But I do think have raised tensions and I think it's a big question about Ukraine, especially buying gas over the next few months to refill its storage. Ukrainian storage, it's at something like 25% right now as of mid-September it's very low and they've gotten a lot of funding to buy more gas, but I think we're going to be monitoring how that progresses.

Eklavya Gupte:

Thank you, Matt. And now obviously looking ahead, one of the big stories, especially for next year, is that there's going to be a lot of new LNG capacity coming online. So, how are these additional volumes likely to impact the dynamics of this market?

Roudy Dirani:

For now, for 2025, most of market participants have been expecting, and rightfully so, a tight market. So, even heading into Q4, we'll continue to see tightness when it comes to LNG supply and how accessible LNG is to Europe. And basically Europe benefited from low demand in the continent, low LGZ demand, low industrial demand, a good amount of renewables which allowed it to fill its storages, but it also benefited from Asia, which has seen very low demand compared to previous years. But recently we've seen some heat waves in Asia that pushed for more cargo procurement in Japan, in South Korea. So, it's always a question mark if we go into Q4 and see, as I mentioned before, a La Nina phenomenon happen also in Asia, which will impact Northeast Asia more with colder temperature, we'll see a pull to Asia for LNG procurements at a time in Europe will also need LNG.

Matt Hoisch:

Well, you know, I think the interesting thing, as you had mentioned Eklavya, is this sense of expanding LNG capacity both in 2026 and specifically over actually really the next few years. We had put out on the news team, we put out a really informative gas and LNG infographic in early September. I would highly encourage any listeners to go on the S&P Global website and check out that infographic. One of the bits of data on that was the forecast from our analytics team about global LNG supply from 2024 through 2030. I think it's one of those pictures that says 1,000 words because you more or less see these bars increasing from global capacity, circa 400 million metric tons, right about now. By 2030 that gets up to 600 million metric tons. So, you're talking about a 50% increase over give or take five years.

A lot of that is coming from the US and Qatar, which are two of the world's major LNG producers, LNG exporters, and I think that the sense we get from the market is going to be over the coming years, an increasing glut of LNG and to maybe connect this all back to Europe. I do think that does contribute to, as Roudy is saying, there's a question of tightness this year. But I think that question really is going to diminish is the sense that I hear from the market over the coming years that what we may be about to enter is the last winter where European gas levels are such a hot topic of conversation from the supply side. Question if, and it's a big if, this glut of LNG does materialize as expected. Both Roudy and I just got back from Gastech, this massive gas conference in Milan, and one of the big topics of discussion among many at this conference was this wave of US LNG specifically that's going to be coming onto the market.

There were some very high level officials from the US administration discussing this US LNG supply coming into the market, many people discussing the potential for deals around that new supply. I think it's going to be very interesting to see how trade flows potentially redevelop over the coming years as that new supply hits the market. The EU and the US recently had this massive trade deal that was agreed to earlier in the summer between Ursula von der Leyen and Donald Trump. And one portion of this deal was a massive commitment from the EU to purchase $750 billion in US energy over the next three years.

And according to the deal, that includes a bunch of different types of energy, LNG, oil, nuclear fuels, but by and large, the understanding from market sources is that is an astronomical increase in EU-US trade. One thing though is that there is this intertwining between diplomacy and energy trade that, especially from the US, really does seem to be coming to the fore. It does seem like the US, all these conversations around tariffs that have been going on for the last few months, there is also an energy component as the US, which currently is the world's largest LNG exporter, just continues to cement its place there. And the thing I'm going to be monitoring, I think from the news side too, is you talk to folks in Europe and everyone is very emphatic about how much they're now trying to ink some US LNG deals in various ways.

But there's also rumblings now of does the EU want to get into the same place with the US that it was in with Russia a few years ago where it's just as dependent on one country for its gas and LNG as it was on Russia. Obviously the US is very different from Russia in many ways, and people will be quick to put those qualifiers in place, but I think it is going to be interesting to see how much, for instance, Europe and any other country is willing to commit to LNG contracts, let's say with US producers, and how much they're going to want to prioritize diversification. Because if there's one lesson we've learned from the last few years in energy markets, it's that if you put all of your eggs in one basket, there is a risk that you get burned.

Eklavya Gupte:

Thank you both. It's been a fascinating discussion. We might have to meet again in the studio, maybe at the start of spring and see what is in store for gas markets in spring and summer of 2026.

Okay, listeners, that's all for this episode. I hope you found it insightful. Thank you for tuning in. Also, I'd like to send a shout-out to the rest of our energy evolution team, including my co-host, Taylor Kuykendall, Christopher Coats, Karen Willenbrecht, Dan Testa, and Camilla Naschert, and also a big thank you to our agency partner, the 199, and the Commodity Insights Digital Content team. Also, don't forget to subscribe to Energy Evolution on your favorite platform so you don't miss the next episode. And if you have any ideas for podcast themes or guests, please fire us an email at energyevolution@spglobal.com. Until next time, thank you for tuning in.