2024 Energy Highlights: Natural Gas

natural gas

Our Energy Economist, Dominic Whittome, shares his Energy Highlights Report on oil, natural gas, and electricity prices in 2024. Delving into the dynamics of Crude Oil, petrodollar, Natural Gas, and Electricity, this is the third of a four-part blog series.

European Gas Market Dynamics: Current and Future Outlook

Back to the Forward Market arena, October Year prices for gas have flat-lined over the last seven weeks. The Annual Contract has risen 4% so far this year, prices recovered from a sharp 25 p/therm fall over January and February. Looking forward there is now the chance of no Russian entering Europe next winter. Even though it supplied significant LNG volumes to France and Spain who replaced Germany as Russia’s largest global gas customers but if all contracts do expire as planned in October, Europe’s supply picture could look precarious once more, not only if winter temperatures are less accommodating than last year but also if European utilities start competing for limited LNG cargoes, not just among themselves but again South East Asian buyers as well. New LNG import terminals will be online, which will help but not finally change the final gas supply available, so prices should start to rise once it is certain the EU will put a final stop to all supplies of all Russian gas.  

ESAP Treaty and US LNG Imports

The UK market is poised to import more LNG, expensive shale LNG, from the USA under the ESAP treaty. As documented in previous editions of Energy Highlights, the Energy Sustainability and Affordability Partnership is essentially a special trade agreement for US gas producers, negotiated in some haste in 2022. The trade deal will bring up to 10 bcm/y of US LNG into the UK gas market and potentially on to European customers, swapped out or physically through the 20 bcm/y Bacton to Zeebrugge interconnector.

Future of North Sea Gas Production

The latest revaluation of reserves at current prices, themselves upgraded on the basis of the latest 3D seismic data recorded, suggests that the Continental Shelf still has 45% of commercially recoverable North Sea oil and gas left to produce. Although over 150 producing fields will not shut over the next two years, two-thirds of all exploration and production licences issued in the 2021 round have been handed back to the authorities so far. But there is little or no sign of any policy shift likely to persuade producers to return at this point. 

Under ESAP deals negotiated so far, US gas is believed to have sold to UK utilities on spot and term LNG contracts at various prices. But all deals were in excess of $50 MMBTU (million British thermal units) which at a $1.25 to Sterling exchange rate works out at 400p/therm. If US gas producers maintain export prices at such levels, i.e. at triple the current October Year price, then that should suggest that wholesale prices will rise as North Sea gas is substituted for imported shale gas under the special trade agreement which was more fully explained earlier although interested readers can still see a fairly succinct and accurate review of ESAP online at https://www.whitehouse.gov/briefing-room/statements-releases/2022/12/07/us-uk-energy-security-and-affordability-partnership  

The Role of BRICS in Global Gas Reserves

Returning to the petro-dollar question, in spite the emergence of the USA as one of the main gas players in Europe’s supply chain, it is sobering that some 60% of the world’s proven gas reserves are held by three countries, all of them card-carrying members of BRICS: Russia with 28%, Iran with 22%, and Qatar with 12%.

Dominic Whittome

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.

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