On February 26th, the Dutch TTF benchmark natural gas futures price fell to around 23 euros per megawatt hour, hitting its lowest level since December 2024. Since the beginning of this year, natural gas prices in Europe have cumulatively fallen by about 20%, reflecting the continued loose supply and demand fundamentals in the market.

High inventory, winter demand did not meet expectations

Currently, natural gas inventories in Europe are still at their highest level in the same period of five years, mainly due to the warmer winter temperatures of 2023-2024 and reduced heating demand, resulting in inventory consumption rates far below market expectations.

According to data from the European Gas Infrastructure Association (GIE), as of mid February, the average storage capacity of natural gas storage facilities in Europe still exceeds 65%, far higher than around 50% in the same period of previous years.

Adequate supply of liquefied natural gas (LNG), weak demand in Asia

Global LNG supply increases: LNG exports from Qatar, the United States, and Australia continue to grow, increasing supply to the international market.

There has been no significant increase in LNG demand in Asia: Due to the early procurement of large amounts of natural gas by Asian countries in 2023, the current procurement demand is relatively low, leading to some LNG cargo turning to the European market, further suppressing European prices.

The decline in Russian natural gas exports has failed to push up prices: Although Russian natural gas supply has decreased due to sanctions, its impact has been offset by other supply sources in the European market.

Prices may still be under pressure in the short term

High inventory limits the room for price increases: Unless extreme cold weather or supply disruptions occur, the slow consumption of inventory will continue to suppress natural gas prices.

LNG supply steadily increases: In 2024, the US LNG production capacity will further expand, with the commissioning of Freeport LNG and Calcasieu Pass Phase II projects increasing global LNG supply.

Industrial demand remains weak: European manufacturing activity has not fully recovered, and natural gas industry usage is sluggish, making it difficult to provide price support.

Long term attention to energy policies and geopolitical impacts

Although natural gas prices may remain low in the short term, there are still potential risks in the future:

1. The Ukraine pipeline transit agreement is about to expire: Europe still relies on Russian natural gas transported through Ukraine, and if a new agreement is not reached by the end of the year, it may lead to supply disruptions.

2. Long term impact of global energy transition on natural gas demand: With increasing investment in renewable energy, Europe's demand for natural gas may face downward pressure in the medium to long term.

Editor's viewpoint:

European natural gas prices have fallen to a 14 month low, mainly due to high inventories, sluggish winter demand, and increased LNG supply. In the short term, the market supply is still sufficient, and prices may continue to be under pressure.

However, geopolitical risks and global energy policy adjustments may still bring unexpected fluctuations to the market, and investors need to pay attention to the progress of key factors such as the Ukrainian natural gas transit agreement.