European gas demand has seen a 10% year-on-year decrease, attributed to weak demand from the power and heating sector. Industrial gas demand, however, remains flat according to Rabobank’s commodity analysts. The decrease in demand is impacting the market, with geopolitical tensions playing a significant role in driving price volatility.
The analysts note that a colder-than-usual winter could lead to increased heating demand and competition for LNG. Despite this, Europe is unlikely to emerge as the premium global gas market. Geopolitical tensions surrounding Russian gas deliveries and conflicts in the Middle East continue to influence price volatility. Speculative positioning has also contributed to recent price movements, with the potential for further sell-offs depending on geopolitical developments.
The European carbon market is closely monitoring price variations in the TTF gas market, with geopolitical risks remaining a key driver for volatility. Elevated gas prices are increasing demand for more carbon-intensive coal-fired power plants, thereby impacting EU Allowances (EUAs) this winter. Forecasts suggest that EUA prices will range between €68-71/t CO2e in Q4, reflecting the market’s response to these developments.
Looking ahead, the analysts predict that higher winter heating demand poses a new risk for 2025 as Europe’s LNG imports are expected to rise again. They anticipate TTF gas prices to average €38/MWh in Q4 and €36-37/MWh in the winter of 2025/2026. The ongoing geopolitical tensions and the potential for further price volatility suggest that the market will continue to be influenced by external factors in the coming months.
Overall, the European gas market is facing challenges due to decreased demand from the power and heating sector while industrial demand remains steady. Geopolitical tensions and speculative positioning are driving price volatility, with the potential for further sell-offs depending on developments in areas such as Russian gas deliveries and conflicts in the Middle East. The close correlation between the TTF gas market and the European carbon market reflects the impact of elevated gas prices on demand for carbon-intensive sources of power generation. Forecasts for EU Allowance prices in Q4 indicate a range of €68-71/t CO2e, highlighting the market’s response to these dynamics.
