UBS Sees Eased Gas Risks in Europe Despite Uncertainties

According to analysis from UBS, a reduction in the risk premium for European gas is observed due to stable Russian supply, as TTF futures fall below €45/MWh from €49/MWh at the beginning of winter. Despite ongoing uncertainties regarding Russia's pipeline gas exports to Europe, the market has shown resilience, with prices expected to fluctuate in the low to mid €40 range for the remainder of the winter season.

Gas storage levels in Europe have aligned with the five-year average, standing at 81% or 84 billion cubic meters (bcm) as of December 10, although this is 10% lower than the same period in 2023. The net withdrawal rate has increased, surpassing both last year’s figures and the five-year average, attributed to colder temperatures and a slowdown in LNG imports. Forecasts indicate that storage may be in the low 40% range by the end of this winter, falling 15% below this year's levels but still 8% above the five-year average.

In November, gas demand in Europe rose by 3% year-on-year to reach 35 bcm, largely due to colder weather, yet it remains 16% below the average for 2017-2021. The electricity sector experienced an increase in gas usage due to lower wind generation and decreasing temperatures.

Additionally, industrial demand in the five highest-consuming EU countries saw a 15% increase month-on-month, but still remained lower than both last year and the three-year average.

According to UBS Evidence Lab data, pipeline gas imports to Europe in November remained relatively unchanged at a total of 16.3 bcm on a monthly and annual basis. Norwegian supply remained stable compared to the previous month but showed a decline year-on-year due to unplanned outages.

Russian gas imports experienced a slight monthly decrease of 5%, approximately 0.1 bcm, amid a contractual dispute between OMV and Gazprom. However, imports from other routes remained steady, resulting in only a 1% drop to 3.9 bcm on a monthly basis.