Natural gas prices across Asia, Europe, and North America have increased by 30% to 50% in 2024, with expectations for further rises in the coming months. This surge is driven by forecasts predicting colder weather, which will lead to higher heating demand in key consumption regions. In addition, the active restocking of gas inventories in Europe and Asia, which have been rapidly declining, will fuel further demand, even if temperatures remain mild.
As the winter season progresses, gas market sentiment is likely to stay positive, keeping prices high well into 2025. The rising cost of gas is expected to raise electricity prices globally, which could put pressure on already fragile economic growth in regions like China and Europe. Increased use of gas-fired power generation is also anticipated to push up coal production, which, although cheaper than gas, generates significantly more emissions.
The main driver of the current surge in gas prices is the heating demand across North America, Europe, and North Asia, which together account for over two-thirds of global gas use. These regions are approaching the peak period for heating demand, and this will further lift prices as gas consumption rises. Additionally, temperatures in key markets like China, Japan, and mainland Europe are expected to dip below long-term averages for the first time in years, intensifying the demand for heating.
In particular, South Korea is set to experience colder-than-usual temperatures, with December averages forecast at around -2.17°C, compared to the long-term average of -0.7°C. This, along with similar trends in Shanghai, Tokyo, and Hong Kong, will result in higher gas consumption and a faster depletion of power fuel stockpiles in these major urban areas.
In Europe, particularly in Italy and Germany, a drop in temperatures is also expected, further accelerating the use of gas. This surge in consumption has already led to a significant decrease in gas inventories across Germany, the Netherlands, Belgium, and France, with stocks down by 11% between October 1 and November 30. This is a notable decline compared to previous years and has resulted in the lowest inventory levels for this time of year since 2021.
In the United States, while gas inventories are the highest in five years, they are expected to start depleting during the traditional drawdown period in late December. This will tighten supplies and contribute to the continued upward pressure on prices as 2025 approaches.
In Asia, many countries still have the option to switch from gas to coal for power generation when prices rise. In Japan, for example, the cost of liquefied natural gas (LNG) has surged 44% above the average coal-to-gas switching price, encouraging coal-fired power plants to increase their output. Similarly, power producers in China and South Korea may also turn to coal as a cheaper alternative. However, any reduction in gas demand in Asia is expected to be outweighed by the growing demand in Europe, ensuring that global gas prices remain elevated through the winter.
As a result, while gas prices have already climbed significantly in 2024, it seems likely that they will continue to rise further, with no immediate relief in sight until the middle of next year.
Gas prices are set to remain high as winter demand peaks, and global inventories continue to tighten. This trend is likely to have significant economic repercussions, particularly for power generation costs and inflation. Despite potential fuel-switching in Asia, European demand will keep gas prices elevated through the coming months, making further price hikes probable.
Diversified Energy Company plc (LON:DEC) is an independent energy company engaged in the production, marketing, transportation and retirement of primarily natural gas and natural gas liquids related to its U.S. onshore upstream and midstream assets.
