European Gas Market Outlook

Overview

Investing.com — The outlook for the European gas market remains exceptionally tight, according to analysts at Morgan Stanley. This situation is largely driven by lower-than-expected inventories and heightened competition for liquefied natural gas (LNG) on the global stage.

As Europe approaches the winter season, it faces considerable pressure to attract enough LNG imports to meet demand. Storage levels are unlikely to reach full capacity by the end of October, resulting in a significant shortfall that increases reliance on LNG supplies. This relies heavily on Norwegian pipeline flows and North African imports, both of which are limited due to ongoing maintenance issues.

Morgan Stanley highlights that Europe is likely to start winter with inventories 7% lower than last year. This gap is primarily due to slow injection rates and intensified competition from Asian markets, where LNG demand continues to rise. Furthermore, with new LNG supply capacity anticipated to remain limited until early 2025, Europe finds itself in a precarious position. Key buyers like China, Japan, and South Korea are increasing consumption, putting additional pressures on the supply.

Pricing Projections

As a result, TTF prices, which serve as a European gas benchmark, need to remain elevated for Europe to compete effectively for LNG cargoes. Morgan Stanley projects that TTF will hold at or above $12.5 per million British thermal units (mmbtu) for the remainder of 2024, expecting prices to rise to $13/mmbtu during peak winter demand in the first quarter of 2025. This represents an upward revision from previous forecasts driven by the tighter supply outlook and increased likelihood of deeper inventory draws throughout winter.

Without a substantial uptick in LNG imports, Europe’s gas storage levels could drop to just 51% by the end of March 2025, down from 56% the previous year.

Supply Challenges

Extended maintenance schedules for Norwegian production facilities, especially the Troll gas field, further restrict European supply. Meanwhile, competition for LNG with Asia is expected to remain intense, where even modest increases in demand may elevate prices.

Morgan Stanley notes that Europe’s reliance on spot LNG cargoes renders it especially vulnerable to global supply disruptions or unexpected demand spikes from other regions.

Future Outlook

Looking ahead, Morgan Stanley’s analysts express cautious optimism that new LNG capacity from the U.S. may alleviate some pressure by the second quarter of 2025. However, until then, Europe is encountering a highly competitive and constrained market with limited room for error in managing supply risks and securing necessary LNG volumes.

The brokerage continues to warn that any unforeseen disruptions—be they geopolitical, supply-chain related, or the result of extreme weather—could further push prices higher, worsening the challenges for European gas consumers this winter.