LIVE MARKETS-Goldman's five reasons why European gas prices won't repeat 2022
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GOLDMAN'S FIVE REASONS WHY EUROPEAN GAS PRICES WON'T REPEAT 2022
The ongoing LNG supply shock is of similar scale to the 2022 curtailment of Russian natural gas supply to Europe, and northwest Europe has lower gas inventories now than it did then.
However, Goldman Sachs analysts say they see prices at 70 EUR/MWh through 4Q26, 20% down from current levels, assuming Persian Gulf LNG exports continue to improve over the course of the winter — as they have over the past six weeks - which is their base case.
That's well below the 300+ EUR/MWh highs in 2022, and Goldman have five reasons why:
More supply from the rest of the world. They say despite the sharp drop in Middle East supply, global LNG supply is up 6% from 2022, driven by a 23% rise from the rest of the world.
Higher import capacity in Europe. In 2022, Northwest Europe had limited LNG import capacity, and so when it tried to replace Russian pipeline gas, it ran into bottlenecks. Since then, Germany and the Netherlands have led a 78% increase in Northwest Europe LNG import capacity
Higher nuclear and renewable generation. Northwest Europe nuclear generation was particularly low in 2022, due to problems in France. This summer, nuclear and renewable power generation are higher, (a 41% increase — 13 GW — for renewables).
Lower natural gas demand. Goldman expect demand in Northwest Europe to average 16% lower this winter compared to average pre-2022 levels, "primarily driven by the shutdown of energy-intensive industrial capacity ... combined with an increase in heat pump home installations." That means "NW Europe can fill storage up to 15pp lower than the pre-2022-energy-crisis average fill of 88% ahead of the winter, while preserving the same winter coverage."
Reduced European government intervention. In 2022, EU requirements for gas storage levels, "created sizeable inelastic demand for natural gas at a time when supply was tight, also contributing to the peak of the TTF rally in late summer 2022." These rules have since been relaxed.
(Alun John)
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