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Natural gas
World | Natural gas

April 1st 2024

Stocks and prices

EIU expects that after falling by about two-thirds in 2023, average natural gas prices will decline
further in 2024-25. However, there will be periodic spikes owing to market anxiety about the
security of global supply chains, amid rising geopolitical tensions. Prices in Europe and Asia have
fallen to their lowest levels in three years. This is likely to stimulate a modest increase in demand
from industry in Europe and the power sector in Asia. However, the effect on prices will be
tempered by other factors, notably the increased use of renewables in Europe and the continued
use of coal in Asia. A significant increase in liquefied natural gas (LNG) capacity, mainly from the
US and Qatar, will also boost natural gas supply and maintain downward pressure on prices in
Europe and Asia over the medium term. The extra demand from LNG exporters will push up US
prices from their current low.
The European Title Transfer Facility (TTF) benchmark price fell below US$8/mmBtu in February.
This was its lowest level since early 2021, when Russia began restricting pipeline gas supply to
Europe. The TTF price has been declining steadily after a brief spike to US$17/mmBtu in
October 2023 in reaction to concerns about the effects of the Israel-Hamas war on global supply
chains. The fall in prices reflects relatively subdued seasonal demand, amid above-average winter
temperatures, increased wind and nuclear power generation, and historically high levels of storage.

European stocks remained high at the start of 2024

There could yet be price spikes in 2024-25 in response to any widening of the Middle East conflict
or other geopolitical events. Despite these potential risks, we expect European prices to average
US$8.9/mmBtu in 2024 and US$8/mmBtu in 2025 (down from US$13.1/mmBtu in 2023) amid
continued weakness of underlying demand and increased supply from the US as new LNG units
become operational.
European gas stocks stood at 67bn cu metres in late February. This was 65% full, according to Gas
Infrastructure Europe (an industry association)—similar to year-earlier levels and about 40% higher
than the average at this point in 2018-22. Stocks are likely to be 50-60% full at the start of April,
which will make it easier to refill storage ahead of the 2024/25 winter.

US prices will recover strongly in 2024-25

Natural gas stocks have been abundant in the US, as residential demand has remained subdued
amid mild winter temperatures, apart from a brief spell of extreme cold weather in January. The
increase in oil production has also boosted associated gas supply. According to the US Energy
Information Administration (EIA), US stocks stood at 72bn cu metres in mid-February—11.2%
above their year-earlier levels and 15.9% above the five-year average. In the first half of February
high storage levels and weak demand pushed the US Henry Hub price down to an average of
US$1.9/mmBtu, which the EIA described as the lowest inflation-adjusted price since 2000.
US natural gas prices are expected to be supported by production cuts from upstream operators
and rising demand from LNG exporters in the coming months. Overall, we expect the Henry Hub
price to average about US$2.6/mmBtu in 2024 and US$2.8/mmBtu in 2025.
On January 26th the administration of the US president, Joe Biden, announced that it would pause
approvals of new LNG projects. This will not have a significant effect on US gas prices during our

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2024-25 forecast period, but it will influence market perceptions over the medium term. The pause
will offer the prospect of lower prices for domestic gas and electricity consumers, as well as for
industrial users. However, it could deter investment in new natural gas production, which could
exert upward pressure on gas prices in the long term. The Biden administration is yet to announce
the duration of the pause.

Natural gas: prices

(US$/mmBtu; averages)
2022 2023 2024 2025 2026
Henry Hub
1 Qtr 4.6 2.7 2.4 3.2 3.3
2 Qtr 7.5 2.2 2.2 2.5 3.2
3 Qtr 7.9 2.6 2.9 2.6 -
4 Qtr 5.5 2.7 3.1 3.0 -
Year 6.4 2.5 2.6 2.8 -
% change 65.3 -60.2 3.3 7.2 -
Europe
1 Qtr 32.6 16.8 8.7 9.2 7.7
2 Qtr 31.6 11.3 8.1 8.0 6.9
3 Qtr 60.2 10.8 9.1 7.6 -
4 Qtr 36.9 13.5 9.7 7.2 -
Year 40.3 13.1 8.9 8.0 -
% change 150.3 -67.5 -32.1 -9.9 -
Sources: World Bank; EIU.

El Niño could yet raise demand and prices in 2024

Depending on its severity, El Niño could be positive for global natural gas demand and prices in
2024. The US National Oceanic and Atmospheric Administration (NOAA) expects a strong
El Niño to continue until March 2024. The World Meteorological Organisation (WMO) also noted
that the effect that El Niño has on global weather patterns usually plays out in the year after its
development, so weather disruptions could be significant in 2024. Its effects were evident in late
2023, when a heatwave in Brazil boosted LNG demand and a drought in Panama hampered LNG
shipments through the Panama Canal.

Natural gas: supply and demand

(bn cu metres)
2021 2022 2023 2024 2025
Production 4,046.1 4,029.6 4,085.6 4,160.6 4,291.5
Consumption 4,014.4 3,899.2 3,890.9 3,983.7 4,093.7
Balance 31.7 130.4 194.7 176.9 197.8
Sources: International Energy Agency (IEA); BP; EIU.

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Demand
We expect global natural gas consumption to grow by 2.6% per year on average in 2024-25 as
demand recovers gradually after two years of contraction. Our forecast assumes that there will be
no clear resolution of the Russia-Ukraine war and no prospect of a return to pre-war gas flows to
Europe via the Russian pipelines. Our baseline scenario also assumes that geopolitical tensions
stemming from the Israel-Hamas war will not significantly affect gas supplies from the Middle East.
We estimate that global demand contracted by 0.2% in 2023, after a 2.9% drop in 2022, mainly as a
result of declines in the EU, Japan and Russia.

European gas demand will rise in 2024-25, but remain far below 2021 levels
We expect European demand to grow by 2.5% on average in 2024, helped by lower prices and the
start-up of new LNG import terminals in northern Europe. A critical factor will be whether the fall
in gas prices will be sufficient to persuade operators of chemical and fertiliser plants to restart
production at units idled during the gas price surge in 2022. Industrial consumption of natural gas
showed signs of recovery in the second half of 2023, notably in Belgium, Spain and the
Netherlands, although demand from this sector is still well below 2021 levels. There is little
prospect of any significant rise in gas use for power generation, given the advance of renewables
and the recovery of nuclear power output in France, while weather factors largely determine
residential demand. After contractions of 12.5% in 2022 and an estimated 7.5% in 2023, European
demand in 2025 will remain about 15% below its average level for the five years before Russia's
invasion of Ukraine.

Russian gas demand will continue to fall

We estimate that domestic demand in Russia fell by 5.4% in 2023, reflecting the negative effect of
economic sanctions imposed by the EU and the US on economic activity. We expect further
declines in 2024-25, as regulated domestic natural gas sales price increases will constrain demand.
Gazprom, Russia's state-owned monopoly gas distributor, increased prices by 8% in mid-2023 and
will raise them by another 8% from July 2025.

US natural gas demand will be stable in 2024

We expect natural gas consumption in the US to grow by just 0.7% annually on average in 2024-25,
as a probable recovery in residential and commercial uptake will be offset by slower growth in
demand from the power sector and continued weak demand from industry. We estimate that US
natural gas demand grew by 1.1% in 2023. A weather-related slump in residential heating demand in
the first half of 2023 was offset by a strong rise in gas use in the power sector due to lower prices.
Natural gas will continue to make gains in the power sector as coal-fired stations are retired, but
there will also be strong growth in renewable capacity and output. According to the EIA, the share
of US power generation from renewables will rise from an estimated 22% in 2023 to 24% in 2024,
owing largely to the rollout of 60 GW of solar capacity, while the share of natural gas will fall from
42% to 41%.

China's natural gas demand will continue to grow in 2024-25

We expect Chinese demand to grow by 6.2% in 2024 and 8.3% in 2025. This follows an estimated
rebound of 7.9% in 2023 after a 1.2% contraction in 2022. Although the weak performance of the
Chinese economy will continue to constrain consumption, we expect lower international prices to
encourage imports. In September the government published a draft gas utilisation policy, which
aims to increase the share of natural gas in the country's energy mix while protecting consumers
from price surges and supply bottlenecks. There will be some switching from coal to gas in the
power sector, but renewables will continue to be the main source of growth in
electricity generation.

Japan and South Korea shift towards nuclear power

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The sharp rise in global natural gas prices has prompted Japan to bring more nuclear power
stations back on stream to enhance energy self-sufficiency. With the recent restarts of the first and
second units of the Takahama plant, 12 nuclear reactors are now back on stream, and in
December 2023 the Nuclear Regulatory Authority lifted a ban on the operation of the 8.2-GW
Kashiwazaki-Kariwa plant, one of the largest in Japan. The government is also proposing legislation
to extend the life of nuclear reactors beyond 60 years. The powerful earthquake that struck Japan
on January 1st 2024 did not significantly damage any nuclear power plants, but it will have
amplified local community concerns about the risks that such events pose to the nuclear fleet. We
estimate that Japan's gas consumption fell by 8.1% in 2023, and there will be more modest
contractions in 2024 (of 1.7%) and 2025 (1.3%) as growth in nuclear power output slows.
In South Korea, there has been a similar policy shift in favour of nuclear power. However, the
government is also committed to phasing out coal-fired power generation, which will support
natural gas demand.

Demand will recover steadily in other Asian economies

The fall in spot prices for LNG imports will stimulate a recovery in natural gas demand in India,
Pakistan and Bangladesh. These countries typically rely heavily on the spot LNG market rather
than on long-term supply contracts. As a result, LNG buyers were highly exposed to surging spot
prices in 2022, and demand contracted. As spot LNG prices moderated in 2023 and continue to do
so in 2024, demand from India, Pakistan and Bangladesh will continue to grow. Thailand has also
substantially increased its natural gas use for power generation.

Natural gas: consumption

(bn cu metres unless otherwise indicated)
2021 2022 2023 2024 2025
US 851.2 897.1 907.0 915.2 919.7
OECD Europe 533.8 467.1 432.1 445.5 453.9
Russia 474.7 410.1 388.0 381.0 378.7
China 378.3 373.7 403.3 428.3 463.8
Iran 236.7 230.1 237.4 244.1 251.6
Saudi Arabia 117.3 120.1 122.6 127.8 132.0
Canada 115.5 120.0 119.1 120.9 121.4
Japan 104.0 102.1 93.8 92.3 91.1
Mexico 90.6 88.5 90.3 92.0 94.4
United Arab Emirates 70.8 69.9 67.8 67.1 68.2
Others 1,041.6 1,020.5 1,029.4 1,069.8 1,118.8
World total 4,014.4 3,899.2 3,890.9 3,983.7 4,093.7
% change 5.0 -2.9 -0.2 2.4 2.8
Sources: IEA; BP; EIU.

Supply
We expect global natural gas production to rise by 2.5% annually on average in 2024-25 as EU
efforts to replace Russian supply stimulate global upstream gas investment. We estimate that
global production increased by 1.4% in 2023, mainly on the back of strong US output. The main
sources of increased production in 2024-25 will be North America, the Middle East and China.

US output will continue to grow in 2024-25

US producers have been ramping up output (with an increase of 4.2% year on year in 2023) to meet
resurgent demand from the country's LNG exporters. The volume of natural gas needed to supply
existing LNG plants operating at full capacity is about 135bn cu metres/year, which represents 14%
of total output. Associated gas production in the Permian basin in Texas is set to increase sharply as
US crude oil output climbs in response to production cuts by Saudi Arabia. US gas producers will

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need to increase output further from 2025, when a new wave of LNG projects will come on stream.
We expect production to increase by 2% per year on average in 2024-25.

Australian supply will rise as exports pick up

We expect production in Australia to increase only marginally until planned new upstream
developments are completed in the second half of the current decade. Major operators such as
Woodside have deferred investments in new projects and expressed concern about a government
proposal to reform the tax regime for upstream gas.

Russian production will start picking up in 2024

Russia is seeking to offset the drop in its pipeline exports to northern Europe by increasing the
volumes pumped through the Power of Siberia pipeline to China and boosting LNG sales. However,
the pipeline to China has a relatively limited capacity of 38bn cu metres/year, which will not be
reached until 2025, compared with pre-war pipeline exports to Europe of about
170bn cu metres/year. Russia has proposed to add 50bn cu metres/year of pipeline capacity to
China through the Power of Siberia 2 project, which would bring gas from the northern Yamal
peninsula. However, China has yet to agree on commercial terms. We estimate that Russian output
fell by 5.1% in 2023; production should grow by an annual average of 2% in 2024-25, driven mainly
by demand from LNG exporters and from the pipeline to China.

Qatar's LNG projects will come on stream in the mid-2020s

In the Middle East and Africa, we expect production to increase by about 3% annually on average in
2024-25. LNG-focused developments in Mozambique, Mauritania and Senegal will boost African
output. In the Middle East, Qatar has a pipeline of LNG expansion projects coming on stream over
the next few years. Its LNG capacity target is now 16m tonnes/year (t/y) higher and will reach
142m t/y by 2030, based on Qatar's estimate of a 14% increase in the reserves of its supergiant
North Field following the discovery of additional gas there. The UAE is also increasing its natural
gas output capacity, supported by a new gas-focused entity, ADNOC Gas, and investment in an
LNG export project. We expect the fast-track development of a major new natural gas discovery in
the Hassi R'Mel area to boost Algeria's production in 2024.

Saudi Arabia will continue to increase output in 2024-25

Saudi Arabia's natural gas production will grow by about 2.8% per year in 2024-25, after rising by an
estimated 3.3% in 2023. Although the country is the ninth-largest gas producer in the world, it does
not have a major impact on global trade flows, as all of its gas is consumed locally. Iraqi production
prospects have also improved following the signature in April 2023 of an agreement with France's
TotalEnergies and QatarEnergy for a US$27bn associated gas and renewable energy project. This
will be mainly for local use, but it will affect regional supply, as it will reduce Iraq's dependence on
imports from Iran.
In Iran, production will increase by 3.5% per year in 2024-25. Progress has been slow on projects
like South Pars 11 and 14, where Iranian contractors have replaced international firms. However,
South Pars 14 is now on stream, and South Pars 11 was inaugurated in August 2023, with initial
capacity of 5.5bn cu metres/year, according to the National Iranian Oil Company. Once
development is complete, combined production at these projects could reach 20bn cu metres/year,
about 7% of estimated national production in 2023.

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Natural gas: production

(bn cu metres unless otherwise indicated)
2021 2022 2023 2024 2025
US 931.1 965.6 1,006.1 1,022.2 1,046.7
Russia 701.6 618.1 586.6 591.8 610.2
Iran 256.7 259.5 271.0 282.1 290.0
China 209.2 221.8 233.5 244.5 257.2
Qatar 177.3 178.7 183.3 189.5 199.2
Canada 172.4 183.4 188.3 191.3 192.9
Australia 145.4 151.8 152.7 155.6 156.7
Norway 117.2 125.8 121.2 124.2 125.1
Saudi Arabia 114.8 120.6 124.6 126.9 131.7
Algeria 101.1 98.2 101.5 103.3 104.6
Others 1,119.4 1,106.2 1,116.8 1,129.3 1,177.2
World total 4,046.1 4,029.6 4,085.6 4,160.6 4,291.5
% change 5.1 -0.4 1.4 1.8 3.1
Sources: IEA; BP; EIU.

The Economist Group © 2024 The Economist Intelligence Unit Limited. All rights reserved.

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