We now have a growing series of data points indicating that TTF prices exceeding $25/mmbtu yield demand destruction in the double digits, in percentage terms. Furthermore, the correlation between these reductions in demand and (lagged) European gas market prices remains at a level of almost -90%. Over the past three months, actual gas consumption has fallen short of expected (weather-adjusted) levels by between -11.4% (June) and -17.7% (May).
These levels of price-driven gas demand destruction represent a continuation and even acceleration of the trend seen from Oct-2021 through Apr-2022. During that period, European gas consumption contracted by about -5% versus forecasted levels that account for weather, GDP and other key demand drivers, other than natural gas prices. When we observed these results back in May, we wondered whether this dynamic would persist into the spring and summer months. Now that we are well into Q3, we have the answer.
Figure 1. Prompt TTF Prices (lagged) vs. European Gas Demand Deviations (normalized): Oct-2021 to Apr-2022
Source: CapraView
Overall, from May-2022 through July-2022, price-driven demand destruction has tripled, reaching a level of -15.0%. This matches the 15% target committed to by most EU states for voluntarily reducing their gas consumption. We should note, however, that the EU target is versus their five-year average levels of demand, rather than the expected gas usage that served as our basis of comparison.
Given the even higher TTF gas prices seen more recently, and assuming that the price elasticity of European gas demand continues at the levels seen since the winter, we expect the EU to meet and exceed its energy savings targets.