Fitch halves European gas price forecast for 2023

Ratings agency Fitch has sharply downgraded its 2023 European and US gas price outlook, the agency said in a March 13 review.

The predicted average price of gas at the most liquid TTF hub in the European Union (EU) in the Netherlands has been halved from $40 per 1,000 cubic meters. feet ($1412 per 1000 cubic meters) to $20 per 1000 cubic meters. feet ($706 per 1000 cubic meters). The forecast for 2024 remains at $20 per 1,000 cubic meters. ft. The agency published the previous forecast in December 2022.

The report notes that the forecast is adjusted “due to higher than expected levels of gas reserves in EU storage” as a result of reduced fuel demand and sufficient supply of liquefied natural gas (LNG) in the region. “We expect the market in Europe to be balanced in 2023, although price volatility may persist,” the agency said.

The agency also significantly lowered the forecast for gas prices at the US Henry Hub site. The forecast for 2023 has been reduced from $5 to $3.5 per 1,000 cubic meters. feet (from $176.5 to $123.6 per 1000 cubic meters), for 2024 – from $4 per 1000 cubic meters. feet ($141.2 per 1000 cubic meters) to $3.5.

The revision of the forecast for gas prices in the US is due to warm weather in North America and Europe, as well as expectations of increased gas production from the Haynesville shale field and the Permian Basin.

At the same time, Fitch maintained its Brent oil price forecast for 2023 at $85/bbl, with the forecast for 2024 raised from $65/bbl. up to $75/bbl

Spot gas prices in Europe have been declining since the end of August 2022. The fall in quotations accelerated in December: at the end of 2022, exchange prices for gas in Europe fell below $800 per 1,000 cubic meters for the first time since February. m. On January 5, 2023, they fell to less than $700, on January 17 – below $600, on March 3 they fell below $500 per 1000 cubic meters. m.. On March 9, quotes fell below $450 for the first time since July 2021. By March 13, prices corrected upwards: at 18:00 Moscow time, April TTF futures were worth $579 per 1,000 cubic meters. m.

According to Vedomosti, the decline in prices is due to significant gas reserves in European underground storage facilities (UGS) against the backdrop of warm weather in Europe ) was 61.5 billion cubic meters. m of gas. Vaults were 56.6% full, more than 20 percentage points above the five-year average on the same date.

The decrease in gas prices in December-January was also facilitated by the high output of wind power plants (WPPs). According to the WindEurope association, in January it provided from 16.5 to 35.4% of the EU energy balance, against about 10% in the summer of 2022.

A period of decline in gas prices replaced a long-term growth caused by the energy crisis in Europe, which began in the summer of 2021. Problems arose due to low stocks in European UGSFs after record fuel withdrawals in the winter of 2020-2021, as well as energy shortages as a result of a drop in wind power generation due to windless weather.

By December 2021, exchange prices for gas in the EU reached a record, exceeding $2,200 per 1,000 cubic meters. m. In March 2022, against the backdrop of the beginning of Russia’s NWO in Ukraine, quotes set a new record, approaching $3,900 per 1,000 cubic meters. m. Then prices gradually declined, but in August they again moved to growth, although they did not reach their March highs.

Experts interviewed by Vedomosti consider Fitch’s forecasts for gas prices in Europe to be realistic.

“Fitch’s outlook is quite close to current market performance and even slightly more optimistic,” says a senior analyst at “BCS The World of Investment” by Ronald Smith. According to him, the price of gas in the EU this year will be in the range of $500-600 per 1,000 cubic meters. m ($14-17 per 1000 cubic feet).

FG Finam analyst Sergey Kaufman notes that Fitch’s estimates for 2023 look realistic. But he considers the preservation of these prices in 2024 as unlikely. “Our forecast assumes average gas prices around $600 per 1,000 cubic meters. m in 2023 and about $400-500 per 1000 cubic meters. m in 2024 due to a gradual increase in supply in the LNG market,” he explains. At the same time, the analyst admits that the maximum gas prices in the EU this year have already been fixed.

The key factors determining gas prices in Europe in 2023-2024 will be weather conditions and the directly dependent fuel reserves in European UGS facilities, experts say.

Smith notes that for Europe the most important factor is the weather in the region itself, but abnormal weather conditions in Asia and the United States can play a role.

Igor Yushkov, a leading analyst at the National Energy Security Fund, notes that as a result of a warm winter, the level of stocks in UGS facilities in Europe following the results of the current heating season will be above 50%. Kaufman points out that the current record UGS occupancy will allow the EU to prepare for the next heating season even with reduced supplies from Russia.

Yushkov draws attention to the fact that two factors remain uncertain so far: the level of actual demand in the EU (in industry and from the population during the summer consumption peak against the backdrop of hot weather) and the pace of increase in China’s gas imports.

Kaufman notes that there is still low demand from industry in the EU, and current gas market prices are probably not low enough to restore Chinese activity in the LNG spot market. “For gas prices in 2024, one of the key factors will be the weather during the heating season, as well as wind generation performance,” he adds. Smith notes that another factor will be the wave of new LNG launches, which should start in December 2023 and last until 2025.

Gas supplies from Russia remain an important factor for the EU, analysts say. According to Smith, deliveries from Russia to Europe (including Turkey) in 2023 may be reduced to 60-75 billion cubic meters. m. “But even 60 billion cubic meters. m is still a significant amount of gas, supplies from Russia will continue to play an important role in the European balance of supply and demand,” he says.

According to Kaufman “Gazprom”, which has a monopoly right to export pipeline gas from Russia, can supply Europe in 2023 (excluding Turkey) 25-30 billion cubic meters. m in transit through Ukraine and one of the branches of the Turkish Stream. Sergei Pravosudov, Director General of the National Energy Institute, adds that Gazprom can significantly increase supply on the European market only if the Yamal-Europe and Nord Stream-2 gas pipelines start working.