Oxford – European gas demand fundamentals

According to a report by Oxford, European gas demand was down by almost 10% in the first ten months of 2023 compared to the previous year. This decrease in demand raises concerns about whether some of the losses are permanent. However, a closer analysis reveals significant variations in demand between different periods of the year. In the first quarter, over half of the reduction in demand was due to a mild winter, while reduced gas-fired power demand was the main driver in the second and third quarters. There are some signs of recovery in gas use in the industrial sector and by small businesses in the third quarter, which is supported by preliminary data for October 2023. However, the expectation of a rebound in this sector may be short-lived due to the worsening economic outlook in Europe. The demand for end-products, rather than gas prices, may be the key determinant of industrial demand in the coming months. In the power sector, improved availability of renewables and French nuclear production are expected to result in lower gas demand this winter compared to the previous year. However, days with low wind availability could lead to short-term spikes in gas use. The residential and commercial sector presents the greatest uncertainty in gas consumption this winter. Even with lower gas prices, the correlation between temperatures and gas consumption is not expected to return to pre-crisis levels. However, if winter 2023/24 is much colder than the previous year, an additional 20-30 billion cubic meters of gas could be added to consumption.