Morgan Stanley: Why Natural Gas Demand Collapsed – What It Means

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Morgan Stanley identifies the biggest shift in demand from households and the commercial sector

European natural gas demand was 26% lower than the average of the last five years for the period OctoberAccording to Morgan Stanley, a development to which the 35% drop in demand in residential and commercial establishments contributed decisively. However, analysts at the US investment house explain that high temperatures, rather than a substantial change in household behavior, were the reason behind the big drop.

As Morgan Stanley points out, European natural gas demand was already 14% below the seasonal average in September, with the decrease widening to 26% in October.

Industrial demand has been weak for some time already, falling 25% below the 5-year average in September. In October, the demand for natural gas in the industry was 31% lower compared to the data of the last five years for this time.

But Morgan Stanley sees the biggest shift in household and business demand, which traditionally accelerates in October. This year, growth has been very mild, analysts note. The result was that while in September household and commercial demand was only 4% lower than in the last 5 years, in October it fell to levels 35% below normal for the season.

The analysts point out, at the same time, that the power generation does not particularly contribute to the reduction of natural gas consumption, since in October it moved only 2% lower than the usual levels for the season.

Where is it due to?

As Morgan Stanley analysts explain, the drop in demand is almost entirely due to high temperatures. Quite simply, this year’s October had fewer days where households had to turn on the heating. The house finds that only in the Netherlands was recorded a decrease in natural gas demand beyond that justified by the weather.

What does it mean for prices?

After lower-than-forecast demand in October, Morgan Stanley significantly upgrades its forecast for where natural gas inventories will stand at the end of March 2023, to 31 bcm, from 26 bcm previously.

However, as this development is attributed solely to the weather and given that we are still at the beginning of the heating season, the house is not revising its forecasts for overall demand yet.

However, with inventories at higher levels and the decline in industrial demand marginally greater than expected, analysts acknowledge that natural gas prices could be lower.

They are therefore downgrading their forecasts to €137 per MWh through the fourth quarter of 2023 and to €111 per MWh in 2024.

moneyreview.gr

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