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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