• French output heavily reduced due to industrial action
• Freeport LNG back operating at full capacity
• European storage levels continue to be at multi year highs
  

Day Ahead & Prompt contracts traded with a significant reduction in volatility throughout March, compared to previous months. Contracts traded in a much narrower range, and whilst volatility still remained, particularly as expected for Day Ahead contracts, prices were kuch more range bound. Mixed weather impacted Day Ahead contracts, with periods of warmer temperatures and high wind speeds providing bearish pressure, however, there were also periods when the opposite was true, colder temperatures and lower wind speeds which increased demand which subsequently provided bullish support.

European storage levels continue to remain healthy and during the periods of warmer weather and reduced demand, this actually allowed for injections into storage to recommence. At the end of March, there were numerous countries who had storage levels at multi year high for the period, potentially reducing demand during the Summer months for stocks to be completely replenished. During the first part of the month, Norwegian flows were heavily reduced due to a period of scheduled maintenance, however, the continued healthy arrival of LNG cargoes into UK & North West Europe ensured that any increases were limited.

For the latter part of the month, we have seen a significant reduction in French LNG, Nuclear & Hydro output, due to the ongoing industrial action that is taking place in the country as workers across a large swathe of sectors strike over potential pension reforms. Nuclear output has also been reduced as a number of cracks have been found in pipes at reactors all across the country, leading to concerns that a heavy maintenance schedule may be required again this year, following a similar period last throughout 2022.

Seasonal contracts have also traded in a narrow range throughout March, with prices continuing to edge lower throughout the first three quarters of the month as the continued healthy fundamental outlook helped to offset any supply concern fears. However, gas contracts in particular did see some upside towards the end of the month, ending March at a slight premium compared to the start of the month.

Prices found support from the reduced French Nuclear output, in addition to the ongoing industrial action, with uncertainty remaining over how long this will last. If the reduction in French nuclear output is as bad as 2022, we could see an increase in demand to meet both cooling requirements and replenish gas storage facilities. There is also some concern over the river water levels in Europe and the reserves for Hydro generation. Whilst March saw quite heavy rainfall, the predominantly dry Winter period has ensured that these levels are lower than usual for the time of year, and may impact generation in the Summer.

There is also potential for an increase in demand as it is "very likely" we will see an El Niño global weather phenomenon this year. This creates temperatures extremes in both Summer & Winter, with heat waves expected throughout Summer, increasing demand for cooling and colder drier weather expected throughout Winter. However, the currently healthy global supply of LNG is helping to limit increases, with Freeport LNG terminal now operating back at full capacity.

Market Outlook

Prompt contracts may potentially see some downside, particularly if the industrial action in France comes to an end in the near future and allows French output to return back to where it was at the beginning of March. Supply fundamentals continue to be healthy, with an abundance of global LNG cargoes and significant European storage stocks to provide a buffer for any short term increases in demand or shortages in supply.

Norwegian gas flows also continue to be healthy, which is helping to alleviate any supply concerns. Longer term, as Europe is now reliant on LNG as the predominant source of gas, if we do encounter a El Niño weather front and see temperature extremes throughout Summer, this may be the start of sustained bullish support, particularly if this is expected to continue into Winter with cooler temperatures and also impact the start if next Summer.

Although storage levels are high, Europe wide levels need to be at 90% of capacity by 1st November, so any shortfall in supply or increase in demand during Summer which sees a requirement to withdraw from stocks is only going to provide upward pressure on prices as gas in storage is required to be replaced in a much shorter timeframe.