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Home/The future of Europe’s gas markets

The future of Europe’s gas markets

Commodity prices drive the size and structure of the energy industry perhaps more than any other factor.

Long-term commodity price expectations have fallen dramatically across the energy market, and strategies and policies are evolving consistent with these new beliefs. More than $200 billion worth of oil and natural gas assets are currently for sale globally. Coal-to-gas switching in power, which becomes more attractive with falling commodity prices, is firmly on the political agenda in Europe and the US.

In this report we explain Aurora’s baseline energy commodity price forecasts in detail, with a strong focus on the European natural gas market.

There are fundamental reasons to believe that low natural gas prices will persist in Europe. By the mid-2020s the US alone will have commissioned more than a hundred million tons per annum of liquefaction capacity, and Iran’s impact on European gas markets will rise substantially. Russia will respond to this competitive threat by broadly maintaining its market share.

On the demand side the power market will play a vital role. Over the next decade, uncertainty around both coal-to-gas switching for generation and the scope and pace of the renewables roll-out make understanding power the key to understanding long-term European gas demand.

We could be wrong. Prices are volatile and surprises litter the history of energy markets. In this report we pay particular attention to key sensitivities, and their implications for market dynamics. Absent a liquid long-term forward market for energy, there are few other choices.

Fortunately European gas markets, being increasingly dominated by market forces, lend themselves well to modelling, and Aurora has invested heavily in this capability through its new AER-GAS model.

This report discusses five central themes that will determine the future of the market to 2040:

  • the long term outlook for global energy commodities: oil, coal, gas and CO2;
  • the forecast of upstream gas extraction capabilities in all regions of the world;
  • the evolution of gas demand in Europe and in particular gas for power;
  • the dynamic effect on Europe’s gas producers and suppliers and their response to a changing environment, and;
  • price projections for the main European hubs.
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