(Bloomberg) -- Europe’s natural gas consumption is struggling to recover from the lowest levels in a decade with hopes now fading that a decline in prices will fully remedy weak industrial production.

The gas market is trying to get a read on the pace of the recovery that now looks to be gradual at best, with some demand permanently lost. Traders at the E-World fair in Essen, Germany say that a key driver is the residential sector where households are using less energy prompted by record high prices during the crisis and a mild winter.

“We would not be surprised to see that demand is not fully coming back in 2024, 2025,” said Egbert Laege, chief executive officer at Securing Energy for Europe GmbH.

Europe’s gas consumption last year fell to its lowest level in 10 years, as countries scaled up energy-saving measures and switched to renewable energy, according to estimates from the Institute for Energy Economics and Financial Analysis. During the two years of Russia’s war on Ukraine, gas consumption declined by 20% across the continent, the institute said.

“Demand hasn’t really come back,” said Marcus Bokermann, director of continental power trading at Vattenfall Energy Trading GmBH. “We don’t know if it’s structural or if its down to something we can’t see like efficiency measures taken during the crisis to save energy.”

Slow economic growth and prices that are still double the levels seen before the energy crisis are keeping a lid on wider industrial demand. Major companies have closed units and even relocated to regions with cheaper energy costs. 

Still, gas costs fell almost 60% in 2023 prompting green shoots in some corners of the market. 

With lower tariffs for industry now available from suppliers, there has been a “good recovery” in the fertilizer and petrochemical sectors and in refineries, according to Marco Saalfrank, head of Continental Europe Merchant Trading at Swiss utility and trader Axpo Solutions AG.

Gas Traders See Signs Europe Demand Gains May Surprise in Winter

Many traders in Essen say that the mild weather this winter reducing heating demand has all-but eroded these small gains in industry, leaving the market long.

“The mild conditions basically destroyed all the advances,” Andy Sommer, who heads the Fundamental Analysis & Modeling team at Axpo Solutions, said in an interview.

Axpo is forecasting industrial demand to increase by 1% or 2% in 2024 compared to last year. That would be in line with 0.9% growth in gross domestic product in the European Union this year and 1.7% next year, according to an analyst consensus on Bloomberg. 

Prices continue to fall - down 26% since the start of the year - which traders refer to as risk-shedding as Europe replaces lost Russian pipeline gas and supplies remain unhindered by the conflict in the Middle East. 

“It’s not just the spot price, forward curves are also going down,” said Helge Haugane, senior vice president for gas and power at Norway’s Equinor ASA said in an interview. “So I am very curious to see what will happen over the next months.”

 

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