ICIS 2024 Outlook for European Gas, Power, and Carbon Markets

• ICIS Energy Outlook for 2024

(WK-intern) – ICIS 2024 Outlook for European Gas, Power, and Carbon Markets

Executive Summary

• Focus on Gas and Power Demand in 2024: Market attention on gas and power demand for signs of recovery after a lacklustre 2023.
• Slow Industrial Demand Recovery: Industrial gas and power demand is expected to revive in late 2024 into 2025, but growth will be slow, especially in the chemicals sector.
• Residential Demand Influenced by Macroeconomics: Household purchasing power increases to gradually boost residential gas and power demand despite high wholesale prices.
• Projected Increase in European Demand: Anticipated 8% rise in gas demand and 2.9% in power demand in 2024, yet below 2022 levels.
• LNG to Meet Increased Demand: 85% of the increased gas demand in 2024 is to be met by LNG, with a 9% expansion in Western European regasification capacity.
• Gas Storage Targets: Forecasted to reach 55% fullness by April 1, likely hitting EU’s 90% target before winter 2024/2025.
• Global LNG Market Shortage: Expected undersupply due to a 5% rise in demand and only 2% in supply, potentially impacting European gas prices.
• Renewable and Nuclear Power Growth: Additional 118TWh from these sources to exceed the 75TWh demand increase, reducing fossil generation.
• Germany’s Shift in Power Status: Predicted to change from a major power exporter to a significant importer by 2024 due to energy source phase-outs.
• Negative Impact of Spark and Dark Spreads: Current negative spreads indicate unprofitability for most coal/gas plants in 2024, except highly efficient ones in certain quarters.
• Risk of Reduced Power Hedging: Prolonged unprofitability of spreads could lead to decreased power hedging and lower utilities EUA demand in 2024.

Demand Expectations

Gas & Power Demand

• Industrial Demand Challenges: Industry impacted by rising energy costs and interest rates over the past two years, leading to decreased manufacturing and consumer goods output in the Eurozone.
• Decline in Energy-Intensive Sectors: Significant declines in sectors like chemicals and steel, with a forecasted 5.2% reduction in European steel consumption in 2023.
• Potential Recovery in 2024: Expectations of industrial recovery in the second half of 2024 and into 2025, but growth will be slow, particularly in the chemicals sector.
• Inflation Impacting Residential Demand: High inflation and cost-of-living crisis moderating consumer behavior, despite falling wholesale gas and power prices.
• Macroeconomic Factors Driving Residential Consumption: Projected growth in Eurozone real GDP and a decrease in inflation expected to increase household purchasing power, leading to a gradual recovery in residential gas and power demand.
• Persisting Below-Average Demand: European gas demand forecasted to be 8% higher than 2023 but still 2% below 2022 levels, with a slow recovery continuing into 2025.
• Power Demand Growth: European power demand projected to increase by 2.9% in 2024, with continued growth expected due to electrification and green hydrogen production for decarbonization.
• Future Demand Trends: Power demand in Europe likely to keep rising beyond 2024, with annual growth rates between 2.5% and 3% projected from 2025 to 2028.

Industrial Energy Demand – The Chemicals Sector

• Chemicals Sector as Major Energy Consumer: Chemicals is the largest subsector of industrial energy demand in Europe, accounting for 22% of the total in 2021.
• Challenges Faced by the Sector: The chemicals sector has struggled with persistent low demand, increasing global competition, and high energy prices, leading to unsustainable margins and closures of petrochemical plants.
• Expectations for 2024: Efforts to rationalize production and maintain low plant operating rates expected, with output remaining below historical averages.
• Limited Upside for Demand: Despite potential positive impacts from falling inflation rates, significant demand growth in the chemicals sector is not anticipated.
• Overcapacity as a Primary Challenge: The main issue in the chemicals market is overcapacity, with a mismatch between slowing demand growth and new capacity. This is expected to persist, with new global capacity coming online in 2027-2028.

Supply Outlook

European Gas Supply

• LNG to Meet Demand Growth: Europe to heavily rely on LNG to meet an 8% increase in yearly gas demand, despite a global LNG market shortage.
• Increase in LNG Imports: Western Europe’s LNG imports expected to rise to 1,743TWh in 2024, a 15% increase from 2023.
• Expansion of Regasification Capacity: Western Europe to expand regasification capacity by 226TWh/year in 2024, with Germany and Belgium leading the expansion.
• New LNG Terminals and Expansions: Germany to commission new LNG terminals and expand existing ones, while Belgium has already operationalized the first-step expansion of the Zeebrugge LNG terminal.
• High Storage Levels to Offset Price Pressure: Gas storage in the region anticipated to reach 55% by April 1 and likely to hit the EU’s 90% target before winter 2024/2025.
• Maintenance Impacting Norwegian Pipeline Imports: Extensive maintenance to reduce Norwegian pipeline imports, the largest source of European supply, leading to weaker imports compared to previous years.
• Russian Pipeline Supply Stagnation: Russian pipeline supply to Europe expected to remain at reduced levels similar to 2023, with continued use by Central European buyers.
• Stable Supply from Other Pipeline Routes: Supply from other pipelines expected to stay mostly consistent with 2023 levels.
• Increase in Domestic Production: Despite the decommissioning of Groningen, domestic production expected to increase, aided by the reopening of the Tyra gas field to supply Denmark and Europe.

Global LNG Outlook

• Global LNG Market Under Pressure: The LNG market is expected to be undersupplied in 2024, with demand outpacing supply.
• Forecasted Demand and Supply Growth: LNG demand projected to increase by 5% to 424 million tonnes, while supply is expected to grow by only 2% to 413 million tonnes.
• Europe and China Driving Demand: Northwest Europe and China are key drivers of increased LNG demand, with Europe anticipating a 15% year-on-year increase.
• Moderate Growth in Asia: Asian continent, particularly China and India, to see moderate LNG demand growth, offset by declines in Japan and South Korea.
• China’s Position as Top LNG Importer: China expected to maintain its status as the world’s largest LNG importer, with a 9% increase in demand.
• India’s Rising LNG Demand: India’s LNG demand growth driven by city gas, power, and industrial sectors, expected to rise by 7%.
• Decline in Japan and South Korea’s Imports: Japan’s LNG imports to decline due to high storage and nuclear availability, and South Korea’s due to increased nuclear, coal, and renewable energy use.
• Limited Supply Growth: Supply growth limited to 2%, with no major LNG projects in the 2024 pipeline, only smaller developments and uncertainties around Russia’s Arctic LNG 2 project.

European Power Supply

• Renewable Energy Expansion: European renewable energy, particularly solar and wind, set for significant growth in 2024, with a combined additional output of 106TWh expected to exceed the 75TWh increase in demand.
• Decline in Thermal Generation: The surge in renewable energy will lead to a further decline in thermal power generation.
• Recovery of French Nuclear Power: The French nuclear fleet is forecasted to recover, adding an extra 11TWh of generation in 2024, while nuclear generation in the rest of Europe will marginally decrease.
• Increase in Gas Generation: Gas power generation is expected to slightly increase by 8TWh, whereas coal and lignite generation is projected to decrease by 34TWh.
• Uncertainty in Fuel Switching Dynamics: There is uncertainty regarding fuel switching dynamics in 2024 due to recent changes in spreads.
• Negative German Power Spreads: German front year clean dark and spark spreads are currently extremely negative, indicating a significant decrease in profitability for gas and coal power generation.
• Germany’s Shift to Net Importer: Germany is expected to continue its transition from a major power exporter to a significant net importer in 2024, primarily due to its nuclear phaseout and reduction in coal and lignite capacity.
• France’s Return to Net Exporter: France is predicted to maintain its position as the largest power exporter in Europe, aided by the recovery of its nuclear power generation.
• European Crossborder Power Trading: The forecast for 2024 shows varying trends in crossborder power trading among European countries, with significant shifts in net import and export statuses.

Price Outlook

Gas, Power & Carbon Price Expectations

• Bearish Outlook for European Gas Market: ICIS predicts a weaker price upside for the European gas market in 2024, with bearish fundamentals.
• Significant Drop in ICIS TTF Value: The ICIS TTF Calendar Year 2024 contract lost 57% of its value in 2023, mainly in the first half of the year.
• Increased Confidence in Gas Supply: The decline reflects growing confidence in gas supply margins, high natural gas stocks, and below-average demand due to weather conditions.
• Vulnerability to Global LNG Market Dynamics: Despite current stability, European gas prices could be impacted by the global LNG market shortage expected to last until 2025.
• Bearish Year for EU Carbon Market: The EUA Dec24 is forecasted to trade in the €60-65/tCO2 range in 2024, indicating a bearish trend.
• Factors Influencing Power Market: Negative power spreads and potential coal-to-gas fuel switching, especially in Q4 2024, are key bearish factors for the power market.
• Industrial Demand Dependent on Monetary Policy: Recovery in industrial demand hinges on the completion of tight monetary policy and interest rate cuts expected by summer 2024.
• Speculators‘ Cautious Approach: Weak market fundamentals may lead to more short positions, but speculators remain cautious due to potential gas price spikes and their correlation with EUAs.
• Gas Prices Driving Power Market: Gas prices continue to significantly influence European power prices, with German power contracts mirroring the decline in gas prices.
• Impact of Power-Specific Fundamentals: Sluggish demand, improved French nuclear output, healthy hydro stocks, and renewable energy additions contribute to the bearish power market.
• Variability in Price Spreads Between Countries: Price spreads, particularly between France and Germany, are influenced by various factors, including nuclear and hydropower conditions, affecting the overall European power market.

PR: BCM Public Relations Ltd

PB: ICIS 2024 Outlook for European Gas, Power, and Carbon Markets