Europe gas and power markets short-term outlook Q4 2021

Record-low inventories have been the biggest contributing factor to extreme pricing, as Europe braces for winter with only 83 bcm of gas in store. Weather dynamics add only uncertainty to the winter balance, leaving prices come March 2022 exposed to significant upside price-risk volatility. European prices are forecast to hold above US$25/mmbtu through winter. And, despite Nord Stream 2 forecast to start-up in February 2022, the impact on winter price downside will be marginal. 2022 will see prices retreat as the market rebalances post-winter. Following record-low inventories by March 2022, injection requirements will still remain high next summer. And the market will tighten again into winter 2022/23, putting pressure on prices as they average above $16/mmbtu. Despite full capacity availability of Nord Stream 2, Russian gas requirements will be high as all routes run at high utilisation. But a softening of prices will come, in the second half of 2023.