A strong El Niño weather pattern is highly probable for the upcoming winter, with forecasts indicating a severity not seen since 2015. This phenomenon, characterized by warmer Pacific sea surface temperatures, is expected to influence European weather by bringing above-normal winter temperatures and stronger winds. For European utilities, this could mean a decrease in heating demand and an increase in wind power generation, potentially alleviating some pressure on the continent's gas market.
Rystad Energy's analysis suggests that while El Niño could temper gas demand, it won't entirely resolve Europe's energy import needs. Their base case projects Europe's gas storage to be 76% full by November 1, necessitating an increase in LNG imports by approximately 15.15 million tonnes year-on-year through June 2027. A moderate El Niño scenario, causing a 1-degree Celsius winter warming, would still require Europe to import at least 7 million tonnes more LNG than the previous winter, mildly supporting gas prices.
The more impactful scenario, a 2-degree Celsius warming, which has only occurred twice historically (December 2015 and February 2024), would bring Europe's LNG imports to nearly the same level as Winter 2025/2026. This would be bearish for gas markets by reducing the need for increased import volumes. While the market often perceives a mild winter as bearish for gas, Rystad's estimates indicate that a substantial warming effect, specifically 2-degree Celsius above average, is needed to bring LNG demand back to last winter's levels.
Despite the potential benefits of El Niño in curbing gas demand and boosting wind power, experts emphasize that it does not fully close Europe's LNG gap. The core challenge remains on the supply side, with ongoing constraints on Qatari LNG volumes due to the US-Iran war and broader impacts on hydropower, solar output, reactor cooling, and shipping due to El Niño's global effects. Market participants are advised to consider a moderate warming as the working assumption, while closely monitoring forecast revisions that could indicate a more extreme, bearish outcome.
