European gas prices have decreased following reduced tensions in the Middle East, with the TTF reference price slightly above the year’s low, just over EUR 32 per MWh. A rise in LNG imports has brought European gas storage levels to 65%, narrowing the usual gap by three percentage points, now under 9.5%.
The IEA’s Gas market report highlights Europe’s 6.5% increase in gas demand in the first half of the year due to the increased use of gas-fired power plants. This has been aided by weaker demand in Asia, while LNG supplies from the US and the Middle East are increasing, with an expected growth of 5.5% this year and 7% next year.
Gas storage facilities are filling faster, alongside moderate import demand from Asia and increased supply. Consequently, price forecasts have been lowered to EUR 35 per MWh by the end of 2025. In the medium term, European gas prices may recover with economic growth and a resurgence in industrial gas demand, as Asian LNG demand is anticipated to rise again.
Based on the current market conditions, we believe traders should anticipate continued low price volatility in the immediate short term. With European storage facilities now nearing 70% full, significantly ahead of the five-year average, and front-month TTF futures trading around €34 per MWh, the market is well-supplied. This cushion against supply shocks suggests that selling near-dated call options to collect premium could be a prudent strategy.
The robust flow of liquefied natural gas is a key factor keeping a lid on prices. Data from May 2024 confirms the United States remains a top supplier to Europe, and with the agency’s report expecting a 5.5% growth in global LNG supply this year, we see little catalyst for a near-term price spike. Therefore, we should view any brief price rallies as opportunities to enter short positions or sell futures contracts.
However, the reported 6.5% increase in Europe’s gas demand for power generation signals an underlying firmness that should not be ignored. This demand is partly driven by maintenance at French nuclear plants and lower-than-average wind generation, reminding us that the energy transition can create temporary fossil fuel dependency. We must monitor power market dynamics closely, as unexpected outages could quickly absorb the current gas surplus.
Looking further ahead, we should prepare for a potential shift in sentiment as Asian demand strengthens. Recent customs data shows China’s LNG imports for the first four months of 2024 were up over 20% year-on-year, a clear sign of economic resurgence. This will increase competition for cargoes and supports the view that European prices may recover in the medium term.
This divergence between a bearish present and a potentially bullish future makes long-dated derivatives attractive. We see value in buying call options for the first quarter of 2025, allowing us to position for a winter price increase driven by renewed industrial and Asian demand. This strategy allows for participation in a future rally while limiting risk in the current, well-supplied market.
Historically, the market is in a completely different position than in 2022, when storage levels at this time of year were below 45% and prices were multiples higher. The current calm is a direct result of these high inventories and stable LNG flows. We should use this period of stability to structure positions that will benefit from the eventual return of market tightness.
