This is Dana Perkins, and you're listening to Switched On, the podcast brought to you by BNF.

Winter in the Northern Hemisphere officially starts on December twenty first, but of course, colder, wintry weather could arrive much sooner, and with it an increased demand for natural gas for heating.

In recent years, we've been reminded that the global movement of natural gas between countries is intimately connected to geopolitics.

When Russia invaded Ukraine nearly three years ago, sanctions imposed on Russia by Western economies led to a dramatic drop in a historically large source of European gas supply at that moment.

The US responded by ramping up flows from the Permian Basin, shipping L and G to the European market, inspiring a third wave of liquefied natural gas.

While geopolitics has an impact on supply, weather plays an equally important role in defining demand.

As we look ahead to winter in the Northern Hemisphere in Europe.

More specifically, figuring out just how much gas Europe may need is heavily influenced by just how cold it might get here.

At BNF, we have our own in house meteorologists working side by side with our Gas team to model the world's changing weather patterns and forecast seasonal gas demand.

Today I'm joined by Jess Hicks, BNF's meteorologist covering European weather, and a lamp Matte Dorao, a senior associate from the Gas team.

On today's show, they discuss some of the topics found in the research note titled European Gas Winter Outlook twenty twenty five to twenty twenty six Final Crunch.

BNF's clients can find this note and other gas and weather research by going to BNF go on their Bloomberg terminal, or by logging in to BNF dot com.

To find out more about how BNF approaches strategy research on the energy transition, including commodity markets, or how it's playing out in different sectors, or perhaps the cross cutting technologies that have the potential to change the future.

Head to banef dot com.

If you'd like to speak with a member of our team about becoming a client, email us at Sales dot BNF at Bloomberg dot net.

Okay, let's talk about the winter ahead for Europe and what this means for natural gas.

Jess, thank you, for joining today.

Thanks Stana, glad to be here.

And oh well, good to have you on as well.

Yeah, thank you.

It's my first time I'm with pod.

Very excited, well long overdue, because you're doing some critical thinking about some of our most popular research, which is the winter and summer gas outlooks, and we're going to talk a bit about both of those today.

But as we think about the work that you're doing on looking at what the you know, six months ahead, year ahead is to the gas market, one of the critical inputs for that is weather.

You know, a cold winter means more gas consumption.

But how big of a fact is it?

How much does weather influence your work?

It's a fundamental factor in our forecast, absolutely, especially for the winter season.

Much of Europe's gas.

Dement comes from heathing, right, the gas that we use at our house, either for like water heating or space heating, and the cooler gas, the more of it we need and we burn.

So to give you an example, if we take for the coming winter the coldest winter weather in the past thirty years, we might see gas storage in Europe theoretically go down to zero by the end of the winter.

That's how much impact weather.

Storage goes down to zero, is there a chance that we actually run out of gas?

It won't.

It won't happen because we'll try to snap up some liquefied natural gas cargoes before that happens, some kind of emergency supply.

But theoretically it could come down to that.

Okay, So weather is one of the top well we'll say top three, or maybe even the top factor that you think about when in particular, looking at the winter gas outlook, I would.

Say so, yes, it's definitely the top three, alongside renewables uptake.

But this is still something that's more I guess predictable in a sense.

The capacity for solar energy or wind energy is not going to appear out of thin air.

But the weather is very very unpredictable.

Well, maybe Jess can predict it.

Yeah, I mean yes, so predicting the unpredictable.

So then let's get to this important factor that we are trying to really think about within a degree of probability, hence the science behind the weather.

What sort of winter do you think that we are in for and what leads you to that scientific kind of probability.

It's always a tough one when someone asked me what I expect the weather will be in six months time or four months time, because I try to do two week forecasts and they're often wrong.

But that's just the name of the game in the weather world.

So what we can look at to get an understanding of how the weather might operate is we can start to look at specific atmospheric pattern and so what I've been looking at, and I follow many reputable meteorologists around the world, and what these individuals are also seeing in certain weather models and certain climate models are specific signals that are pointing us in the direction of a very cold winter in the northern hemisphere.

And so how I process this, I take every bit of information, I understand what people are saying, and give myself a percentage of what I expect the winter will be.

So, for example, this year, I put the odds of a harsh winter around seventy percent, and that's just based on three key climate signals that I've been monitoring over the past few months.

One aspect to look into or consider for a harsh winter would be something called sudden stratosphere warming.

So this is where the stratosphere rapidly warms over a matter of a few days, and what happens is it weakens something called the polar vortex, which keep cold Arctic air at the top of the globe.

And so what happens is this usually tight circuit slows and lobes of this cold air will come down and hit multiple points on the northern hemisphere, so North America, Europe, Russia.

And when this happens, this is where we can start to see cold air outbreaks and an uptake and gas demand in which what I'm trying to look for is signals for this.

So what are those key climate signals.

I think some of these might be familiar for some of our listeners, but I'm going to spell them out for those who are unfamiliar.

One key signal is ENZO, the El Nino Southern oscillation.

So this is a natural cycle along the equator in the Pacific Ocean.

It's a cycle of warmer or cooler temperatures that influence global weather trends.

And so when Enzo is in the La Nina phase, which we're currently entering into again, this has the potential to increase the risk of cold air outbreaks in Europe, and a lot of meteorologists debate this.

Enzo specifically doesn't have that big of an impact in Europe itself, but more recently than not, we are seeing a trend of these cold air outbreaks.

When La Nina hits, we have this influence happening moving into winter twenty twenty five, twenty six.

But the next key climate signal that I've looked into is something called the QBO quasi biennial oscillation.

So that's just a fancy term for shifting wind patterns in the stratosphere around the equator.

And right now the QBO is in its negative phase, and what that means is that hilts our odds in favor of sudden stratospheric warming events in winter.

And the third and final climate signal that I've focused on is looking at Arctic sea ice.

What we've seen is that in the barns and car seas we've actually recorded almost record low ice coverage.

What we can see are the odds of a sudden stratospheric warming event increasing, and so Arctic air will then spill into the northern hemisphere again increasing gas demand.

And so if we pull all this together, the La Nina, the negative QBO, the low sea ice, and the barons and car seas this is stacking the deck towards at least one sudden stratospheric warming event this winter, and so that will lead me to believe that's seventy percent chance of a harsh winter.

There was one that you actually downplayed in here, which is the Lenino el Nino effect, and I'm particularly fixated on it because I grew up in northern California, where we talked about El Nino La Nina a lot, mostly because of the rain, and because those of us in California play sports outdoors when you're a child, so it has a daily effect on you during those winters.

But we've been doing this podcast for about five years and that effect has come up repeatedly in this show.

So I want to know, is are you seeing an increase in that flipping and that frequency of that being a factor that you look at.

Because my understanding was this is something that was, you know, while it is a natural occurrence, while there is a rotation to it, it felt much further apart and I'm seeing it feature much more often on this show.

So taking my individual heuristic experience and turning it into something that is actually something a meteorologists could think about, are we seeing any sort of increase in frequency of this effect.

It's actually a brilliant question.

I think what's happening here is that it's in the news more often, okay, but also once you hear it once or twice, you start to see it a lot more.

And so La Nina, el Nino, Enzo, the umbrella of Enzo has always been there.

There's always been a natural flipping.

I think some meteorologists and climatologists at the moment are looking into seeing how it's changed over time.

I haven't personally looked into that research, but from my understanding of Enzo, it's just the natural cycle.

So we'll get a period of up to three years of El Nino and then flips into a neutral phase and then into La Nina for a year, and it might stay in La Nina after that.

So it's just how the water is turning in the Equatorial Pacific.

It may or may not be changing, and I guess time will tell.

Well, actually, it may be in the news a lot more and we may see more headlines on it because the warming atmosphere is actually amplifying the effects of El Ninon and La Ninia in certain areas.

I think Almino is the phase that is most publicized because you can see disastrous flooding, disastrous draughts all around the world because of Elmino, and with warming temperatures, you have a much higher amount of water vapor in the atmosphere, so you have much higher potential for these extreme rainfall events to happen.

So this just further highlights that some of these factors may be increasing in terms of their relevance, and it really comes down to trying to weigh that up as a meteorologists and figure out how important it will be in this mix of all of the different sigles that you've been looking for to think about what might happen for us in the year head.

Let's pivot then to what this information then tells us.

I'm feeling pretty certain at this point that many gas traders are actually quite close friends with meteorologists, and that they spend a good amount of time together.

We've established that we are expecting a higher usual probability for cold winter, and we also have geopolitical forces at play.

So what I'm referring to specifically is the continued war in Ukraine and then resulting sanctions against Russian gas imports to Europe that do continue to be holding, at least as of the time of this recording.

So when countries in Europe are thinking about headed into this winter gas storage, you know, all signs would point to in higher than usual gas storage, but we're not at one hundred percent.

So talk to us a little bit about where we are in terms of storage and what might be impacting not being at one hundred percent, you know, because in my mind I'm thinking conservatively that's where I would anticipate things kind of went to.

And in the recent past we have seen really high levels of gas storage headed into winter.

So where are we now and why do you think that that is the number that we are at here in October?

Yes, you're absolutely right.

So after your versua as an invasion of Ukraine, European Union as a whole kind of came together and established that we needed to replenish stock piles of gas much more conservatively, and we went up to almost ninety five percent.

At the beginning of winter twenty twenty three, twenty twenty two, we had very very high levels of storage, and now this summer has played out a little differently.

The reason for that is we finished last winter on relatively lower levels of storage than in previous years.

The weather was actually pretty close to the average.

I think that Jess can elaborate on that later on.

But what really really dent did us stockpiles during last winter was that we didn't have much wind, and so since European countries are relying more and more on wind power generation in their systems, if certainly you don't have any wind, you're going to burn much more gas to compensate for that.

And the European countries did the best to refeel storage during the summer season, but we're not really quite up to the target levels.

So to give you an idea, the targeted level of stockpiling was ninety percent.

And this target was set by the European Union.

Correct it was set by the European Commission and enforced the country level, but with no real penalty, to be fair, so it's been more less respected because we're still within the allowed deviation range.

We haven't hit ninety percent, but in the past few weeks we've crossed eighty percent refill at the Union level, which is within the ten percent deviation range that was allowed by the Union.

So I'd say were kind of out of the woods in that sense, we don't have particularly low starch.

And one very important factor is that we're going to see a lot more liquefied natural gas coming online on the market this winter.

Basically Europe has been leaning on imports of this I guess, very very cold liquefied version of natural gas that can be carried on ships once the Russian tap kind of dried out.

Okay, so we'll come to where that extra LNG is going to come from and when we can flex that muscle.

But before we do, we're headed to a particularly cold winter.

Potentially, how about windy Is that going to be that factor that may make up for that under supply from storage?

Absolutely so this year, unlike last winter which we saw record low winds, this winter, I do expect us to have a gusty, rainy winter for Northwest Europe, and so I think there are a few factors in favor of bringing the jet stream up and pushing a lot of those winter storms into Northwest Europe, bringing the rain, bringing the wind.

But with that comes cloud cover, which isn't as important in the renewables scene in winter as there's low solar potential anyway, But this will help us going into winter twenty five twenty six, and Al, I have a very interesting data point when you were talking about the low wind last winter.

So in February of this year, twenty twenty five, I was looking at the data and in Germany, our top wind, we saw wind speeds drop thirty six percent compared to twenty twenty four, and so win generation then slumped by forty seven percent year on year, and we saw spike and gas by fifty one percent year on year.

And so you can see you just with those data points the connection we'recial and how fragile maybe the renewable sector is to weather shifts.

And so hopefully this year round will see much better potential.

Even if it is a colder winter, maybe renewables will step into fill the gap.

So we may have the ability for wind to dial up this winter.

But let's say that we don't.

Let's say it is both cold and flat in the air.

What does that then mean for LNG consumption?

Because a lump you had reference that there is more LNG potentially coming online, Where is it coming from?

Why is it coming online?

And then invariably we've got to get to what does this mean?

For prices, yes, absolutely, So to give you a little rundown of the numbers, Detiko funded reguest supply I was talking about this winter.

Is going to base tically increase by almost ten percent on here.

That's a huge number, and Europe is going to absorb a lot of that increase in supply actually, and when you look at where that supply is coming from, a lot of it is actually originating from new projects located in the US, specifically the US golf Coast, so basically traveling across the Atlantic and delivering to Europe because it's a much shorter journey than going to Asia.

In as such, the arbitrage for deliveries to Europe tends to play in favor of Europe versus Asia.

And that's why I'm not afly concerned over the security of supply for Europe this winter.

In fact, we think that there might be a surplus of energy on the market and that some of that flexible supply will actually struggle to find a home, maybe not at the beginning of the winter, but by the end of the winter and moving into summer.

It's going to become a real puzzle, I think.

But there are already discussions about energy prices in the northern Hemisphere being particularly high this winter, very much revolving around this cold weather pattern that we are expecting to see.

If there is a plot of supply of LNG on the market, will prices go down or will that then be met by a lot of what we've been talking about here at BNAF among our research teams, which is just this increase in demand.

And you know, we did a recent show that was actually a recording from our summit in Houston, and they talked a lot about this demand side, in particular coming from data centers, but we also know that a huge percentage of that is the roll out of electric vehicles demand increasing LNG supply.

What does that mean for the short term, Yeah, that's a.

Very good question as something we look very closely.

We basically work with power team here at Bloomberghenia have to figure out how much more power demand they will be and how much DAS will need to meet that extra demand.

I don't think that in the very short term it's going to completely overwhelm the entire system, but definitely does something that's going to be of growing importance looking out to twenty thirty.

The next couple of years, but then there's a next six months exacting.

We're really talking about this next six months precisely.

Yeah, which done actually brings me to are you already looking at next summer?

Yes?

And what is the knock on effect between what happens this winter and next summer?

And when do you kind of get to make a decision on what the forecast is for next summer?

Because the winter gas outlook we do that in September headed into the year ahead, well, the winter ahead, when do you kind of have to make decisions on what this summer is going.

To look like.

Well, that's a very good question.

And actually, when you were just talking about prices, I think that the market is certainly pricing in the weather risk of this winter and how it might have repercusion onto our summer gas needs, if only for starage purposes, right, and if we are to trust our weather are cool on that there is a significant weather risk for this winter and we might actually need much more LNG this summer in order to refeel starts if it goes down by something like ten percentage points below the base case, that what we think is the most like li scenario in the case of a particularly cold winter, maybe not the coldest, but something that's like, I don't know, twentieth percent out in the last fifteen years.

So it's a very real risk, and I think the market is pricing that, and that's why you're seeing energy prices going to Europe.

When you look at you know, the future scurf for contrast traded for the summer months of twenty twenty six, it's actually not that low, not that cheap, even though we're having so much more new supply coming on the market, and it's yeah, we're scratched our heads over this, but I think that much of it is due to the weather risk.

Can you actually compare that to the last five years, because you're right, I asked that question about prices, and then we just kind of moved on to the next interesting topic.

Where are prices looking likely to be at this winter compared to the last five years.

Yeah, So what we say is that if you we get the forward curve, if you have like gas prices that are around eleven dollars per million of British thermal units, well it's not trually not that low.

You're seeing like gas prices that we're actually holding up.

And even though we're not quite as high as you know in the immediate wake of the energy crisis and the invasion of Ukraine, where in twenty twenty three were so completely crazy prices, it's still not cheap enough to unlock some price sensitive demand in key markets in Emerging Asia.

But also it doesn't get cheap enough to revert some of the demand destruction that we have seen in Europe.

And to be fair, some of that demand destruction that we've seen can go up to twenty percent of your industrial gas demand being vanishing basically in the past few years.

Some of the demand destruction is here to stay simply because the plans that I might have used gas might have simply closed you to unfavorable economics and shop elsewhere where gas prices might be a little bit cheaper.

That's really interesting because energy demand is increasing but not necessarily being met by gas supply in Europe, even though in the US that is a really big topic of conversation about using to mass produced a gas but because Europe actually has very little domestically produced you've seen this pivot over time with how the economy is set up in energy supply.

Yes, absolutely, and I think that for the time being, we don't really have to worry about the US's you know, domestic gas demand taking away from llergy exports.

I actually had a chat with our US guest senior at Boomrinia like a three days ago about this, and they said, the basins for guests are not necessarily connected to the demand hobs and like much of the gas that's from the Permian basin is going to add to lergy exports anyway.

It actually the supply demand equilibrium, let's say, in US guest markets, is not so dire that even in the case of acul Windery, we might actually see restrictions on energy export.

So yes, so you end up.

Seeing geopolitics weighing pretty heavily in some of the discussions, specifically when we talk about Russia Ukraine.

And one of the things that has really come up a lot more with our clients lately is saying, Okay, what precedents do we have for cycles and commodities of course are very no stranger to supercycles, but you know what historical context do we have to tell us really how the future potentially will play out when these sorts of conflicts arise on the supply side, you also have very similar historical waves that maybe come out that perhaps are studied and discussed a little bit less than geopolitical factors.

Can you talk about how history has played out in terms of these kind of ramp up periods of LNG supply and how that has impacted the market and what that might tell us about the situation that we find ourselves in today.

Yes, absolutely so.

I guess that LNG has a rich and somewhat long history in the energy world.

You see a first wave of energy projects coming up, maybe in the seventies and eighties, with countries like Japan that had to essentially the import much of their energy resources resource poor countries from other places.

The specific base in typically Indonesia was one of the pioneers, I suppose, or even in Europe with gas coming from Algeria on ships pretty early on.

And I think that we saw a second wave of democratization of sorts for LERNG maybe around the twenty tens when you had Australian projects kind of like rumping up quickly.

But in both cases for those first two ways, there was a really big difference I think from what from the situation at play here, which is that much of the volumes that were exported from those projects were underpinned by long term contract so they were off takers to this contrice and.

We sort of knew where it was headed.

Who was going to buy anuther price, and most of the time those prices were being packed to oil prices.

So pretty stable supply supply, a stable buyer, stable pricing.

But I think we're headed into a much more chaotic world with dis third wave of LLERG coming not only from the US.

US is going to double their supply, but also from Qatar, and in both cases you might not see the same amount of contracted energy in their export days.

That means potentially that Europe can find a better bargain if we're in the NAVI supplant market.

So it's not assarily a bad thing, but definitely is going to make for perhaps more volatile rule.

I think it dies into the unpredictability of prices that you are just talking about.

We won't do the same history lesson for geopolitics that I reference.

There is a team for that of Bloomberg, but they're not in the room right now.

But let's highlight a pretty important curve ball.

So in addition, to the importance of weather and all of this, we have brought up Russia Ukraine specifically supplies of natural gas from Russia and how important it is for the market in Europe.

There actually have been an increase in relative terms of imports this last year with some sanctions still in place, but there is the potential for a full ban on Russian gas in Europe to come into place.

Leaving aside the probability of that happening, let's talk a bit about what that would actually mean for the winter ahead and what that means for European gas markets.

Y has been talks in the European Union to complete leave bam any imports of Rusion gas, be it through pipelines or liquefied on ships energy.

Even if this band was voted by the European Union, and it would take a unanimous vote in order to do that, it wouldn't kick in until the end of twenty twenty seven, so it's still pretty far out.

It wouldn't impact this winter, I suppose, and as you pointed out, very ironically, despite sanctions on multiple Russian energy projects, so far, imports of version energy into Europe haven't stopped at all.

Pipeline flows might have been reduced to a trickle, but really we're seeing a lot of version energy flowing into Europe even to this day, so that would be a big change if we saw a full blown band being enforced.

But to your point, it would be a multi year we would see it coming, it would be baked into your winter and summer gas outlooks in the future because that policy would take time to come into effect.

Absolutely and in the mint.

Actually, Russia is more of a Barish factory when we look at the market because for the longest time we thought that everybody would respect the US sanctioned on their new Arctic lendar to project, but China has thought in importing cargoes from that project.

It's back September, so we're actually seeing more export out of Rushad and previously thought simply because they didn't respect the sanctions.

So in reality, less of a curve ball, because we'll see it coming.

So then I'm going to turn to you, Jess.

You're going to have to supply me with something that is going to be surprising.

What is the biggest curveball from a weather standpoint that could happen and not saying likely to happen, could happen.

It is just worth tracking as we head into the winter ahead.

I still wouldn't be surprised if we see more dunkel slatta the periods of cooler temperatures and lower wind speeds, even though we will still have a few storms hitding northwest Europe.

I still think potentially between storms, or if there is a blocking pattern that sets in, we could see another period of low wind speeds and that turn we'll impact gas.

So we'll see.

We'll see what happens this winter.

I am very hopeful that the Northwest might get snow, since I'm a snowbird myself.

But in terms of the renewable sector versus the gas sector, let's see how it bounces out.

Okay, So long may continue the friendship between the gas and meteorologists practitioners.

Thank you very much for joining today and talking about the interplay between your work and what we might be expecting in the year head and you know, lots of details that you go into in much more granular detail in a couple of reports that we put out as we head into winter.

Thanks so much for having us.

Thank you, Dana.

Today's episode of Switched On was produced by cam Gray with production assistance from Kamala Shelling.

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