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Energy outlook – Summer 2024


Envantage energy outlook – Summer 2024

By Meri Bortsvadze, Energy Trader

Energy prices in the UK and across Europe plummeted in Winter 23 to late 2021 levels amid strong LNG and pipeline gas imports, ample inventories in storage, acceleration of renewable capacity installations, subdued industrial demand and mild winter conditions, which in turn pressured residential consumption. While industrial demand is projected to increase year-on-year, it remains below the 5-year average as the weak global economy is preventing a major recovery, at least near-term.

On the supply side, Norwegian production is likely to remain stable due to a lighter maintenance schedule compared to Summer 23, however, uncertainty around LNG deliveries is expected to be one of the main contributors to price fluctuations as seen in the first few days of April after a new gas summer period started with strong gains both on the front and back-end of the curve. Rebound in Asian LNG demand has paused the downside in Europe and pushed UK / European energy prices back to January levels. While spot fundamentals remain bearish, various risks could generate volatility now that Europe competes for gas supply in a more globalised market and the UK imports are highly sensitive to international price dynamics.

One of the main factors determining the price dynamics over the next few months will be geopolitics. Since late 2021 geopolitics emerged as the main driver of energy markets. The Russian invasion of Ukraine completely changed European energy landscape and the ongoing war in Eastern Europe continues to shape the markets. Recent drone attacks on Ukrainian gas storage infrastructure and Russian oil refineries have only added to the upside. Additionally, shipping constraints on the Suez Canal due to ongoing military conflict in the Middle East and Iran’s potential involvement in the war will likely provide bullish support to the prices over this summer.


Demand is expected to rise Y-O-Y, although will remain below historical levels

Strong rise in energy costs, high inflation and the hike in interest rates by key central banks had a massive impact on residential and industrial demand in Europe over the last few years. While in 2023 European electricity demand remained suppressed, ICIS reports suggest that the demand is set to increase by 2.9% in 2024 year-on-year, although it will remain below the average of 2017-2021. Demand recovery will likely depend on macroeconomic outlook, the fall in inflation and thus, interest rates, and the overall cost of living which has changed consumer behaviour since the start of the energy crisis. Industrial demand is anticipated to increase by 3.3%, driven by higher consumption from mostly steel industry, while residential demand will be impacted by the rise in household purchasing power as the inflation falls in the second half of 2024.

Similar to electricity, gas demand is also forecast to rise, especially in the second half of the year and up to 8% according to ICIS, however, this might be offset by higher LNG imports. On the other hand, the rapid deployment of energy efficiency measures during the energy crisis, the development of renewable energy infrastructure, particularly solar PV and the ramp up of both onshore and offshore wind generation contributed to the drop in gas-for-power demand. Data from LSEG shows gas-for-power consumption in the UK decreased to 440 GWh/d during Winter 23, down from 445 GWh/d in Summer 23 and is forecast to drop to 337 GWh/d throughout Summer 24, which could potentially weigh on spot prices.

Demand over the next few months will highly depend on the weather patterns as well, as warmer than average temperatures could drive up the cooling demand, while potential droughts could impact nuclear and hydrogeneration.

Ramp up of renewable generation and interconnector flows might pressure CCGT generation

Electricity supply looks to be more robust compared to last summer, with returning UK and French nuclear capacity, light maintenance schedule at North Sea gas assets and higher hydro stocks across the Alps and Nordic regions following additional rainfall this winter.

French nuclear generation has been recovering after the uncertainty around production due to extensive maintenance works and corrosion checks at key reactors throughout 2022, which turned the country from a net exporter to net importer of electricity. Total production last year increased to 320 TWh, up from 279 TWh in 2022 and so far, we are seeing a year-on-year increase of power generation with the cumulative volume to reach 315-345 TWh by the end of 2024 according to Électricité de France (EDF). From the UK’s perspective, this could potentially impact the electricity imports via three links with the total capacity of 4 GW. UK CCGT generation might see a steep fall in summer amid an increase in interconnector flows due to not only a boost in French nuclear generation but also the addition of a new Viking Link with the capacity of 1.4 GW, allowing UK to import renewable electricity from Denmark. Additionally, we can expect more imported
electricity from the continent due to the narrowing spread between UK and EU ETS prices, making French CCGTs cheaper compared to UK gas-fired generation. Nuclear power generation in the UK has so far been impacted by planned maintenance works as well as unplanned outages at Heysham 1 and Hartlepool, decreasing cumulative output by 15.6% y-o-y by March, however, both reactors came back online just before the start of the summer period.

Competition for LNG will likely intensify due to tight market

European gas storages ended the heating season with record high inventory levels. Storages as of 1st April were almost 60% full, around 45% higher than the 5-year average, meaning that throughout summer European countries will need to inject only 32 bcm to fill the sites up to 90% target. EU member states are required to meet the target set by the European Commission by 1st November 2024, however similar to last year, the target might be met and even exceeded earlier than the deadline. Record high inventory levels and lower injection demand could weigh on gas prices in the coming months.

Throughout 2024, Europe is expected to continue to rely on liquified natural gas as LNG almost fully replaced Russian pipeline imports following the start of the war in Ukraine. In 2023 European countries significantly expanded the regasification capacity by adding several terminals, including Floating Regasification and Storage Units (FRSUs) and the trend, led by Germany, is set to continue in 2024 too. This is expected to provide greater flexibility, contributing to energy security in the region. On the other hand, increased reliance on LNG has made Europe exposed to global supply risks, and the competition for LNG with Asian buyers during the high-demand season remains a threat, especially considering that Europe lacks long-term LNG contracts and is mainly reliant on spot or flexible cargos which are often subject to price fluctuations.

China and India are expected to remain the main competitors for LNG with the Chinese economy continuing to recover, driving up the energy demand. At the same time, 2023 saw a decline in Japanese and South Korean LNG imports, owing to the ramp up of nuclear power generation and the downtrend is likely to continue this summer, partially offsetting the demand growth in China. This year we are expecting to see strong demand from Egypt as well, as once an exporter of gas, the country has recently become a net importer due to declining domestic production. A drop in imports from Israel and low domestic production will not be enough to meet the country’s gas demand this summer, which will further tighten the global LNG market and might hurt European LNG import outlook.

Overall, the global LNG market is forecast to be undersupplied and while European demand continues to be subdued, higher-than-expected Chinese economic recovery as well as shipping constraints on Suez and Panama Canals could potentially contribute to the upside. Another risk for the European import outlook is potential outages at Freeport LNG facility in the US, which have caused some extreme price moves in the past. According to the current maintenance schedule, Trains 1 and 2 will be shut down until May due to ongoing inspections.

Norway continues to be the main pipeline gas supplier for Europe

Russian pipeline imports have been decreasing over the last two years with the total share falling to 6% in 2023. The existing transit agreement with Ukraine expires at the end of December 2024 and so far, none of the parties seem to be willing to extend the contract beyond 2024. In Summer-24 imported volumes from Russia are expected to remain flat, however, the risk of damaging the infrastructure due to continuous attacks, cannot be ruled out.

As Russia cut exports to Europe, Norway emerged as one of the major suppliers with the total exports reaching 122 bcm in 2023. Norway played a pivotal role in meeting Europe’s energy needs by providing gas via its 8,800 km pipeline network. Last year saw a y-o-y decrease in flows due to extensive maintenance works on Gassco’s key infrastructure in the North Sea, including 13.6% fall in the exported volumes to Britain which provided bullish support to UK gas and electricity prices. More planned maintenance works are expected to be carried out in Q3-2024, but the schedule of outages is usually published well in advance, therefore future drop in volumes is often already priced in by the market. On the other hand, price volatility might be caused by heavier-than-expected maintenance. Additionally, the production will depend on the approved gas and oil quotas for the Troll and Oseberg fields. These fields have historically been producing more oil than gas, however, the trend has reversed in the last few years with gas now accounting for 80% of total production.

Gas production in the UK continental shelf will continue to decline this summer due to heavy maintenance schedule at the Culzean and Cygnus gas fields along with planned outages at several other, relatively smaller production areas, which in turn will increase UK’s reliance on imports and make UK gas and electricity prices more exposed to global energy risks.


Most of the fundamentals point towards the bearish direction as Europe entered the gas summer period with record high level of inventories, strong pipeline supply and subdued demand. However, events of the last couple of weeks showed that upside risks are still very much present as the evolving energy landscape, global competition for gas, tight LNG supply and most importantly, geopolitical issues pose significant threat to the market.

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