High filling levels and efficient trading helped stabilise the gas market
European gas markets stabilised in 2023, after a turbulent year with supply concerns and high price volatility. Here, Head of Gas Trading & Optimisation Henrik Tveteraas explains how trading optimised the flow of gas and helped distribute the available resources efficiently across Europe, ultimately strengthening security of supply.
Coming down from unprecedented high price levels and heightened supply concerns, gas market participants had to adjust quickly to a new reality in 2023. The main headlines for the new market reality were declining commodity prices and decreased consumption, which tasked energy traders with identifying new trading strategies to ensure efficient markets.
From scarcity to stability
In 2022, gas markets were disrupted by geopolitical conflict and supply concerns due to a significant drop in the supply of Russian natural gas. Concerns about a cold winter and gas scarcity sent energy prices through the roof and put market liquidity severely under pressure. In the end, Europe managed to overcome the crisis by increasing LNG imports from the US and Qatar and by successfully reducing gas consumption.
This meant that the market paradigm shifted from scarcity to stability. One of the main signs of the market stabilising in 2023 was the decline of the record high prices seen in 2022. During the period from June 2023 to August 2023, TTF front-month gas prices had dropped by more than 80% compared to prices in the same period in 2022.
Looking at supply, reports show that Russian pipeline gas flows decreased by 56% from 64 bcm in 2022 to 28 bcm in 2023. This was offset by an increase in LNG imports. In 2023, the US was the largest LNG supplier to the EU, representing almost 50% of total LNG imports. In 2023, comparing to 2021, imports from the US almost tripled.
Lastly, market stability was also driven by decreased gas consumption. From January to August 2023, European gas consumption dropped by 11% compared to the same period in 2022. The decrease was supported by a relatively mild winter, which also contributed to high filling levels across European gas storages, along with a 90% target filling level by November set in the Storage Regulation.
During 2023, we managed the largest gas storage portfolio in Danske Commodities’ history, which enabled us to support the European energy system with the flexibility available to us.
Efficient trading supports security of supply
For traders navigating this new market reality, adaptability was key. In a matter of months, market volatility fell significantly below the volatility levels seen in 2022, which called for adaptation to the new market conditions.
At Danske Commodities, our main focus was on optimising the flexibility under our management to balance supply and demand efficiently through data-driven trading and sophisticated analytical models. During 2023, we managed the largest gas storage portfolio in Danske Commodities’ history, which enabled us to support the European energy system with the flexibility available to us.
New reality calls for new solutions
2023 was in many ways about adjusting to a new market reality. Prices moved closer to pre-crisis levels and filling levels across European gas storages were high, but the work to make sure Europe can overcome extreme weather conditions or unforeseen market events continues. To ensure future security of supply, LNG imports to the EU are expected to grow in the coming years, with some projections indicating that LNG will surpass pipeline gas sourcing by the end of the decade.
Regulatory measures are also being introduced to ensure security of supply. Increased filling requirements have been introduced by several member states, one example being in Germany where it is now required for storages to enter the winter season with a minimum of 85% filling by the end of October and a minimum of 40% filling in the start of February.
In addition, the market is looking to green alternatives like biomethane as a supplement to natural gas and LNG. The future of European gas markets is still evolving, but what remains certain is that the world will need flexible energy sources, and Danske Commodities is committed to providing the needed flexibility through our wide portfolio of energy assets.