Three Trends to Watch in Our Winter European Natural Gas Demand Forecast

European gas prices and demand have undergone many changes in recent years, with consumption in certain sectors reaching new all-time lows. 

As we approach winter and the increased demand for heating that comes with it, how will European markets fare? While European natural gas prices are lower than last year, we continue to see weak demand figures. 

Gas storage numbers look healthy across Europe, with gas storage levels well above the 90% target, but how might they cope if prices come under pressure again? The impact of Russia’s invasion of Ukraine is still being felt, and whilst the extreme prices of winter 2022/23 have faded, underlying consumption behavior remains altered.

Our team has decades of experience forecasting gas and electricity demand for both wholesale markets and custom solutions, with offices across America, London, Bucharest, and Auckland. 

Let’s delve into the European natural gas demand trends we expect to see this winter.

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1. Gas for Industrial (IND) Use

While natural gas for industrial use has rebounded year on year, consumption is still broadly below pre-COVID and price crisis levels. On the continent, we have observed limited recovery across 2024 in Germany, France, and Italy, while the UK has experienced further contraction. 

Source: Yes Energy’s TESLA Energy Demand Forecasts

While gas transmission system operators for Germany and the Netherlands don’t directly provide breakdowns of consumption data for non-local distribution company (LDC) sectors, we derive and forecast demand for industrial and gas for power usage.

Source: Yes Energy’s TESLA Demand Forecasts

As the largest consumer of natural gas in Europe, Germany is of particular focus for many natural gas traders. While 2024 has so far been considerably lower than the average between 2017 and 2022, from spring onwards, there has been consistent growth against 2023. After adjusting for realized weather conditions using our TESLA Energy Demand Weather Decomposition tool, which strips out the impact weather has on demand and approximates what demand would have been under seasonally normal weather conditions, we see year-on-year growth across all of 2024.

Adjusting for weather gives a much clearer picture of underlying market trends without cold or hot spells influencing analysis. The growth has been relatively meager, but it points toward lessening demand destruction into 2025 and beyond.

2. Gas for Domestic (LDZ/LDC) Use

Certainly the most temperature-responsive of sectors, gas for domestic use takes a strong seasonal shape. As cooler temperatures are felt across the continent, European natural gas demand levels are already in excess of those seen across the summer. With winter 2022-2023 and 2023-2024 being relatively mild, this may be a serious test to markets post-price crisis if temperatures drop below seasonally normal levels for prolonged periods.

While it’s still too early to produce any reliable weather forecasts for the coming winter, our long-term demand forecasts provide multiple scenarios to approach future trends. Our baseline forecast, which assumes seasonally normal weather, is produced with a two-year horizon and captures the underlying market trends. 

In addition, our Weather Risk/Weather Years Tool gives greater forecasting power. We create demand forecasts using observed weather from the past 40 years, which can also be viewed as percentiles. Viewing past weather events using current market assumptions provides far greater forecasting power and allows us to visualize extreme weather events.

We’ve seen a considerable change in consumption behavior because of the price crisis, and by forecasting this into the future using past weather conditions, we see significant changes to demand compared to when these conditions were originally observed.

For example, while we’ve observed demand destruction, the degree to which we see this changes dramatically depending on temperatures. Higher prices have caused consumption to drop, but this behavior lessens as temperatures drop further. 

While people make every effort to reduce their natural gas demand, primarily from reduced heating applications, there comes a point where temperatures become cold enough that usage returns to similar levels as seen before the higher prices. This is further affected by the length of a cold snap, as the longer conditions remain below seasonally normal temperatures, the greater the impact this has on consumer behavior, and hence demand.

This raises the question – if this winter is colder than the previous two, will we see demand bounce back significantly? If it is warmer than the previous two, there is little scope for demand to fall further, which results in far more demand volatility if temperatures are cooler than seasonally normal.

Using the Weather Risk/Weather Year Solution for European Natural Gas Demand

Yes Energy’s TESLA Demand Forecast Weather Year Solution reveals the baseline demand forecast plus demand under a very cold scenario. 

In the images below, we’ve used the Weather Year Module to view the full range of forecasts produced using 40 years of historical weather, with 2018 shown as the yellow dotted line.

Source: Yes Energy TESLA Demand Forecasts Weather Year Module 

The image above includes the 0, 20th, 50th, 80th, and 100th percentiles, while the image below highlights the 50th percentile. 

Source: Yes Energy TESLA Demand Forecasts Weather Year Module 

In 2018, Paris ground to a halt during the heaviest snowstorm in 30 years, with extreme cold reaching across Europe. If the "Beast from the East" weather event happened again, where temperatures in Paris dropped to -8°C, we forecast demand for gas in French local distribution zones (LDZs) to almost double. 

You can use our Weather Year Solution to leverage past weather patterns and incorporate current trends to create forecasts that provide greater confidence in managing upcoming risks.

3. Gas for Power Use

Gas for power use has remained extremely low in 2024, with various factors playing a role. Growing renewable generation capacity across Europe continues to disrupt markets, with 23% of all energy consumed in the EU in 2022 coming from renewable sources. With a target set at 42.5% for 2030, the increased rollout will only continue to lessen the demand for gas for power.

According to Réseau de Transport d'Électricité (RTE), the French transmission system operator, the French nuclear fleet is broadly back to 2021 capacity levels. Having recovered from widespread outages in 2022 and early 2023, this provides yet another source of decreased demand. Weather-adjusted French gas for power demand has averaged -67% versus 2023, starting from a low base. 

Italian gas for power has seen remarkably low demand, with the monthly average weather-decomposed demand for January to June being the lowest on record (for data available post-2010). Whilst levels have recovered to 2023 levels and above since July, this market serves as an example of just how low demand for gas for power has sunk.

Source: Yes Energy’s Energy Demand Forecasts

While other countries' numbers are not quite as low, weak numbers are still broadly observed across most markets. Little recovery, if any, has occurred since the gas price crises, leading to uncertainty around the coming winter. 

How will European natural gas demand look once desire for heating ramps up, and will the reaction to colder weather be similar to previous years? How will the need for gas for power change as renewables continue their strong growth? 

Conclusion

TESLA power demand forecasting solutions enable you to make informed decisions when buying and selling in energy markets worldwide.

Using advanced statistical models and forecasting techniques, we accurately forecast natural gas demand for domestic (LDZ/LDC), industry and gas for power across Europe. With a wide product offering, use our baseline forecast in conjunction with Temperature Steps, Weather Decomposition, and Weather Risk/Weather Years Modules to increase your confidence, with long-term forecasts providing a two-year horizon.

Want to learn more? Tune into our webinar on European natural gas markets December 3, or request a demo. 

About the author: Ben Fowler is a senior data analyst at Yes Energy, specializing in building, maintaining, and analyzing gas and power demand forecasts in the EMEA region. Based in the London office, Ben has a primary focus on the Italian market while also ensuring accurate custom solution forecasts are produced for a range of clients.