Gas prices had been under pressure throughout the previous year as well. Prices broadly varied within $3.65-$1.94 levels in the futures platform due to a complex interplay of supply and demand dynamics that adversely affected the outlook of the fuel. A similar price action was also witnessed in the domestic MCX futures.
A shortage in demand caused by above-normal temperatures in key consumers like the US and Eurozone, the industrial slowdown in Europe, and record-high production and exports from the US depressed prices across the globe.
Weather conditions can significantly impact the gas demand. Last year, warmer-than-normal temperatures across Europe and America were reported in the peak demand seasons, which led to a decline in consumption. Colder weather in the US and Europe is the primary driving force behind the uptick in prices as it is a seasonal phenomenon that traditionally amplifies heating demand.
A slowdown in industrial activity, especially from the Eurozone put additional pressure on prices. Europe’s economic stagnation has dragged on for more than a year due to costlier credit and high energy prices that adversely affected the gas intake for industrial purposes.
High inventors, easing fears of supply shortages, and weak heating demand were other reasons which led to a drop in the Eurozone’s gas demand. As per the latest Energy Information Administration (EIA) data, European gas demand shed 7% last year, reaching its lowest level since 1995. A rapid expansion of renewable energy and increased availability of nuclear power also pondered demand from Europe and other mature Asian markets. Meanwhile, China’s gas demand grew by 7% in 2023. As pandemic restrictions loosened and economic activity returned, China regained its position as the world’s largest gas importer in the previous year.
Natural gas production has been increasing at a steady pace over the past decade. In 2023, the US, the largest producer and exporter of gas, reported a record surge in production raising fears of a supply glut leading to a selloff in prices.
However, there are forecasts that global gas demand is set to pick up this year. As per the latest IEA report, global demand is likely to grow by 2.5% in 2024. Colder winter temperatures, hopes of increased consumption from emerging economies, and a return of price-sensitive industrial sectors would lift the demand.
The agency also predicts supplies will be tight in 2024. Growth in supplies is expected to be 3.5% well below the 8% growth experienced between 2016-20 periods.
Anyhow, increased price volatility can be seen this year amid geopolitical risks and supply-side concerns. Geopolitical uncertainties like Russia’s invasion of Ukraine heightened tensions in the Middle East and concerns over deliberate interference with critical infrastructure such as pipelines all have the potential to generate further volatility in prices this year.
(The author is Head of Commodities, Geojit Financial Services)
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