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5 charts explain gas & power price slump into 2023

January 30, 2023

By Paul Homewood

More from Timera on softening gas prices:

5 charts explain gas & power price slump into 2023

Europe entered winter confronting the threat of gas & power supply cuts and price spikes. Policy makers scrambled to protect consumers. Energy companies did their best to protect portfolios.

Across the 4 weeks from mid Dec 2022 to mid Jan 2023 Europe’s energy crisis delivered its latest twist. Instead of spiking, gas & power prices slumped.  Benchmark TTF forward gas prices for delivery across 2023-24 were cut in half, falling 40-60%.

The knock-on impact of this rapid decline was a textbook case study in why the European gas market is so important to broader energy market pricing. European power prices saw an associated decline as the variable cost of marginal gas generators fell. Pacific & Atlantic basin LNG prices also followed TTF south given Europe’s key role in anchoring global LNG prices.

What the …. happened? Let’s explore using 5 charts.

    1. Record European LNG imports

Europe is absorbing LNG like a sponge. LNG imports were up 74% in 2022 vs 2021, a huge increase as shown in the top panel of Chart 1. This went a long way to making up for the 2022 drop off in Russian pipeline supply volumes (excluding Turkstream) as shown in the bottom panel of Chart 1.

Chart 1: European LNG imports surge (top panel) vs Russian pipe flow declines (bottom panel)

European LNG imports

Source: Timera Energy, LNG Unlimited

Russia vs LNG supply to Europe

Source: Timera Energy, ENTSOG, LNG Unlimited

Incremental LNG imports saved Europe in 2022. But Europe likely faces an additional 40-50 bcm reduction of Russian flows in 2023 vs 2022. That is a material hole to fill!

    2. Weak Asian LNG demand

Europe’s surging LNG imports were supported by a substantial reduction in Asian LNG demand in 2022. Asian LNG imports declined 8% in 2022 vs 2021, as shown in Chart 2. This was the major factor allowing incremental LNG volumes to flow to Europe.

Chart 2: Asian LNG demand year-on-year change vs JKM price

Y-o-Y change in Asian LNG imports vs JKM

Source: Timera Energy, CME, LNG Unlimited

This decline was driven by Asian demand response to soaring LNG prices, as shown by the JKM price in Chart 2 (green line). But lower demand was also helped by a mild winter and a weaker 2022 macroeconomic backdrop in China.

Two factors represent headwinds to further weak demand in Asia in 2023: (i) China’s post-Covid lockdown re-opening & policy stimulus is set to spur economic growth (ii) the recent price decline supporting incremental LNG demand.

New LNG supply volumes are also set to be relatively weak in 2023 (given low volumes of project FIDs in 2018). It is not until 2025 that the LNG market is set to see a material increase in new supply.

    3. Low European gas & power demand

European gas demand declined more than 10% in 2022 vs 2021, with the biggest declines focused in Q4. A mild winter definitely helped. But there has also been evidence of:

  • genuine demand destruction given high prices (e.g. industrial production cuts)
  • shifts in consumer behavioural patterns driving energy efficiency (e.g. turning down thermostats)
  • fuel switching (e.g. oil for gas and refinery optimisation).

Power demand has also fallen significantly which has helped to ease gas demand from gas-fired generators. The scale of gas & power demand declines since Sep 2022 has been a big surprise and a major contributing factor to declining gas & power prices. Chart 3 shows the pronounced fall in power demand across 7 key markets vs previous years.

Chart 3: Power demand across 7 key European markets

EU7 power demand

Source: Timera Energy, ENTSO-E

If this structural decline in gas & power demand continues in 2023 then Europe may weather the crisis better than most expected. The reductions in residential & commercial demand since Q4 are encouraging, but we only have several months of data across an unusually warm winter.

Demand reductions are a key factor to watch in 2023!

    4. High European storage inventories

Storage inventories across the EU sat at over 83% full entering the new year, helped by government storage mandates and mild weather. Europe has also seen historically low withdrawal volumes winter-to-date.  The pan-European storage position is summarised in Chart 4.

Chart 4: EU underground gas stock levels

EU underground gas stock levels

Source: Timera Energy, GIE

There is currently little incentive for storage withdrawals given (i) a TTF price curve in contango (ii) continuation of relatively mild winter. We published a snapshot article last week with more detail on current European gas storage dynamics.

High storage inventories weigh on the market because they reduce summer demand for injections (by ~15 bcm) and provide an insurance buffer into next winter. Whether this buffer will be sufficient depends on the factors above (i.e. European LNG imports, Asian LNG demand and European power & gas demand).

    5. Falling gas & power prices

The 4 factors set out above have combined to push European gas & power prices lower into 2023. Chart 5 shows the TTF forward curve (i) in Aug 2022 at the peak of the crisis (ii) at the start of Dec 2022 (iii) at the end of last week.

Prices have fallen substantially since last summer’s peak but remain elevated versus pre-crisis levels.

Chart 5: TTF prices

TTF price formation

Source: Timera Energy, ICE

The substantial premium of TTF over JKM has now diminished (but not disappeared). The fact that European prices remain at or above JKM levels reflects the fact that both the European and LNG markets remain in a tight regime despite recent price declines.

The DES NWE price discount to TTF has also declined (back to a 1-2 $/mmbtu range) as new regas capacity is coming online to ease import bottlenecks and some of the acute market stress of 2022 has eased.

Not yet out of the danger zone

There has been widespread reporting that European gas prices are now ‘below pre-invasion levels’. Sounds comforting right, the crisis must be largely over? No.

While it is factually correct that front month TTF prices are now below pre-invasion levels this says little about the tightness of the European gas market across the next two years. 2023-25 forward TTF prices are substantially higher than pre-Russian invasion levels.

Both the LNG market and European gas market remain in a very tight regime of inelastic supply and demand curves. In this environment small changes in volumes drive big changes in price, both up and down.

The factors we set out in this article are the key drivers that will determine market dynamics across 2023. It is dangerous to assume we have seen the last twist in this crisis.


Most of this is straight forwsrd supply and demand stuff. High gas prices have triggered more LNG supply, lower consumption and switching to other fuels, such as coal and oil.

Perhaps the most surprising graphec is the sharp decline in power demand, which is a strong sign of economic and industrial slowdown.

  1. John Hultquist permalink
    January 30, 2023 5:24 pm

    Mostly good news now and in the short run.
    Remains to be seen what the Nations of Europe do in the next 9 months.
    At this point the “Black Swan” waiting to appear is still there.

  2. January 30, 2023 6:05 pm

    China not only used less gas because of economic factors due to covid lockdowns, it also substituted coal for gas. This enabled it to resell LNG at Antwerp that it bought from Russia. Part of the reason that after Norway, Russia was the largest supplier of LNG to Europe in 2022 ahead of US and Qatar. Unlikely any of that will be repeated in 2023.

    • It doesn't add up... permalink
      January 30, 2023 10:37 pm

      Russian LNG continues to flow into Belgium, Spain, France and sometimes the Netherlands. The Chinese have taken some of their Russian supply via Suez, but as the ships make their way back to Europe it will be interesting to track what they do with the next loadings. There were even two Russian LNG cargoes discharging simultaneously at Zeebrugge the other day.

  3. Realist permalink
    January 30, 2023 7:19 pm

    But diesel just increased in price again. Are the politicians inventing backdoor taxes to kill mobility?

    • Ben Vorlich permalink
      January 30, 2023 7:37 pm

      End of last week I had to go to Dundee from Derby where I live. The price of petrol was 5p a litre cheaper and diesel nearly 10p. I can’t really see any justification for the difference especially diesel.

      • January 31, 2023 8:48 am

        Oil prices have been creeping upwards, unlike gas.

      • Realist permalink
        January 31, 2023 12:55 pm

        The problem on the European mainland is that diesel(1.65 euro per litre) when I looked yesterday is more expensive than petrol. What is that doing to the price of _everything_? I think politicians are inventing backdoor taxes to kill mobility. Particularly in those countries where the government sets the price and it is the same price at every filling station in the country.
        >>End of last week I had to go to Dundee from Derby where I live. The price of petrol was 5p a litre cheaper and diesel nearly 10p. I can’t really see any justification for the difference especially diesel

    • It doesn't add up... permalink
      January 30, 2023 11:06 pm

      Diesel is in short supply because of the sanctions on importing Russian diesel into Europe that have just taken effect. 3-4 years ago 25% of our diesel was directly imported from Russia, with probably more imported via Rotterdam, and more refined from diesel rich feedstocks from Russia.

      • Realist permalink
        January 31, 2023 1:01 pm

        So why buy diesel from Russia instead of the Middle East as it always used to be?
        Supply and demand is normal as regards prices, but the problem in Europe (and that includes the non-EU countries in Western Europe) is the TAX at point of sale for the actual end user.
        ..>>sanctions on importing Russian diesel into Europe

      • It doesn't add up... permalink
        January 31, 2023 1:28 pm

        We used not to import much diesel in the days when we had more refinery capacity and before dieselisation took hold. Indeed we probably exported it as gas oil to heat Dutch greenhouses. As refineries shut and diesel penetration increased Russia became an important source. The Middle East was not particularly important, as it mainly exported to India and Asia. Much more expensive to ship from thete too. Now we are seeing Russian exports going to India where they are mixed and loaded back on ships for Europe, adding big cost and shipping delay.

  4. Joe Public permalink
    January 30, 2023 8:56 pm

    “4. High European storage inventories”

    On 28th Oct last year, the Beeb published an erroneous table graphic on:

    “British Gas-owner reopens storage ahead of winter”

    I submitted a complaint that day, pointing out that the BBC failed to completely and correctly understand Gas Infrastructure Europe’s data, and consequently its graphic was incorrect. In Oct 2022 Britain had ~40TWh of natural gas storage capacity, and on 28th Oct it held 17TWh in medium-term underground storage; 2.8TWh in Rough (Long term storage); and, 11TWh as LNG.
    TOTAL = 30.8Th

    3 months later, on 25th Jan, the BBC deigned to admit it was wrong:

    “After considering this issue and looking at the GIE data, it appears that the data is not accurate and we have therefore removed the graphic and added a note to acknowledge the edit to the article.”

    • It doesn't add up... permalink
      January 30, 2023 10:43 pm

      Don’t know why it took them so long. Presumably you pointed them to

      I see Rough added a capacity increment just before Christmas.

      • Joe Public permalink
        January 31, 2023 2:01 pm

        Yes, thanks 👍.

        That was the source for being able to specifically quote:

        “….. on 28th Oct it held 17TWh in medium-term underground storage; 2.8TWh in Rough (Long term storage); and, 11TWh as LNG.
        TOTAL = 30.8Th”

        “Don’t know why it took them so long.”

        But you know the Beeb, it never likes facts, especially when they contradict its claims. 😉

    • Phoenix44 permalink
      January 31, 2023 8:18 am

      The sad thing is all those “clever” European countries bought at the peak and now sit on hugely expensive reserves. All because they believed the experts who said gas prices wouldn’t fall.

  5. Stephen Hedges permalink
    January 30, 2023 9:58 pm

    Ironically the lack of UK storage capacity for NG has surely saved us billions.(In that alternative scenario we would have been adding to our stocks in the summer when prices were sky high.
    In point 4. I am a little mystified by the reference to a contango in TTF futures-AUG. 2023 prices are barely different to Feb. It’s only when you look much further down the curve that there’s any real change in prices.

    • It doesn't add up... permalink
      January 30, 2023 10:58 pm

      We did add to our storage over the summer. But we were taking advantage of discounted oversupplied LNG shipments, and if those were properly hedged it should have reduced our overall cost of supply. Depends who bought the other legs of the hedges of course.

      • Stephen Hedges permalink
        January 31, 2023 11:00 am

        Indeed but we (fortuitously) had a somewhat limited ability to add to our storage-my recollection is that the discounted shipments were available in May/June prior to prices rocketing (from their already elevated levels) in late summer.
        We, the consumers are presumably on the other side of their NG in storage, paying 9.6p KW/h for our gas.

      • It doesn't add up... permalink
        January 31, 2023 11:51 am

        Germany was doubtless happy to keep restocking at Russian contract prices. Prices for gas varied enormously depending on location and contracts: BG’s LNG deal with Chenière is priced at Henry Hub plus 15% plus $2.25/MMBtu FOB Sabine Point, so they can land gas in the UK way below European futures prices. Futures prices at TTF only reflect the TTF hub trade. The spike in futures prices when Nordstream was shut down almost certainly mainly represented short positions being margined out – I.e. bought back at any price because insufficient collateral was posted. That will have hurt producers who sold hedges or speculative trades from traders or banks. The volumes traded were tiny.

        Meanwhile UK stocks were probably a lot higher than shown by the time you add in the floating storage off Milford Haven and even Cadiz (quite a few ships moved from that anchorage to discharge in the UK eventually).

        For Germany the problem is that their import capacity is insufficient to meet winter demand, so they rely on storage to be able to do that. It is not really an advantage: they will struggle to refill storage this year. The UK has enormous import flexibility from Norway and as LNG.

    • Joe Public permalink
      January 31, 2023 12:25 am

      “Ironically the lack of UK storage capacity for NG has surely saved us billions.”

      Many other countries would be envious of our natural gas storage capacity, and our stock levels.

      We’ve also been quietly refilling Rough (Long-term) storage. Today is has 3,743GWh in stock.

      • Stephen Hedges permalink
        January 31, 2023 7:40 am

        Very obviously, I was referring to our relative lack of gas storage capacity (by comparison, Germany has 200TWh+).
        My point being it’s much better to be buying now @ £50 MWh bearing in mind that the price in August was seven times higher.

  6. January 30, 2023 10:01 pm

    So when wSo when will our gas heating prices drop?ill gas prices actually drop?

  7. January 30, 2023 10:02 pm

    Try again. When will gas heating prices drop

    • It doesn't add up... permalink
      January 30, 2023 11:01 pm

      We have to get some of the cumulative losses out of the system. OFGEM was trying to force companies to buy expensive hedges under the price cap scheme, and government compensation is taking a while to pay out as cash rather than as an accounting liability estimate. That will take poring over the actual actions of energy suppliers to ensure that they aren’t ripping off taxpayers in asking for compensation, or landing us with exhorbitant costs from their own incompetence.

      • Joe Public permalink
        January 31, 2023 2:11 pm

        Yes, it’s not so long ago that some were whingeing that energy suppliers were remiss in not having long-term contracts.

        IIRC, even Putin chided Germany regarding the latter’s preference for relatively short-term contracts, before deciding to invade Ukraine. 😉

    • Phoenix44 permalink
      January 31, 2023 8:20 am

      Lots of people put in place long-term deals as there was no way the price was coming down…

      • It doesn't add up... permalink
        January 31, 2023 2:31 pm

        A long term deal can be at floating prices. In fact, almost all are. Some include longer periods of averaging. Many Russian deals were tied more to oil prices, and reflected the historic discount of gas to oil. Now gas has been trading at a premium to oil in Europe.

        Hedge trades tend to be via financially settled swaps and futures. They have been much more costly to execute because of the demands for collateral on a mark to market and performance risk basis. Highly volatile markets increase those costs substantially, and make full hedging unaffordable. Hence why OFGEM were forced to reduce the cap time period, and in effect to abandon the cap to government subsidy.

  8. liardetg permalink
    January 31, 2023 8:49 am

    Will the industrial slowdown show up at Moana Loa like COVID didn’t? Perhaps we don’t understand the carbon cycle and human input is negligible?

  9. GeeDee permalink
    January 31, 2023 12:23 pm

    Are any of the facts true. Is there a way to verify anything?

    • dave permalink
      February 1, 2023 9:26 am

      “Is there a way to verify anything?”

      Look at the dogs that don’t bark.

  10. It doesn't add up... permalink
    January 31, 2023 12:57 pm

    Fascinating analysis of European power flows last year from PF Bach

    Click to access pfb_france_rushed_down_from_net_export_to_net_import2023_01_28.pdf

    The UK has been bailing out the Continent (by burning more gas). Spain has also helped out, also by burning more gas, with much of it Russian LNG.

    • Joe Public permalink
      January 31, 2023 2:16 pm

      That’s a great link IDAU, thanks for sharing.

      “The UK has been bailing out the Continent (by burning more gas) ….”

      But Nat Grid tells us we virtue signal by exporting ‘clean’ energy!

    • dave permalink
      February 1, 2023 11:04 am

      ‘The Europeans’ are forced to be a little nicer to us on the political front while they are in need of our island’s occasional surplus of electrical power.

      Normal (ungentlemanly) service will be resumed a.s.a.p.

  11. Nigel Clarke permalink
    January 31, 2023 6:14 pm

    …but I’m still paying 3 times as much for my gas, why?

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