Key facts
- Global natural gas supply is expected to remain tight until at least next summer.
- Europe is outbidding Asia to refill storage levels.
- Asian countries are building more LNG import capacity despite price inflation.
- Goldman Sachs expects European gas prices to average 70 euro per MWh this winter.
- European power generators are switching to coal due to high gas prices.
- Russian LNG flows from Yamal LNG could be redirected to Asia at a discount.
Global natural gas supply is expected to remain constrained until at least next summer, potentially leading to sustained demand destruction, according to the International Gas Union (IGU). The industry association, which represents 90% of global gas producers, noted that Europe is currently outbidding Asia to secure supply for its winter needs, a situation that could persist.
Menelaos Ydreos, secretary general of the IGU, told Reuters that the market anticipates a prolonged conflict, driving Europe to prioritize refilling storage. While some demand destruction has occurred due to price inflation, it remains uncertain if this is temporary or will lead to long-term policy shifts. Reports from Global Energy Monitor indicate that Southeast Asian countries are still constructing gas-fired power plants and expanding LNG import capacity, suggesting a continued reliance on gas despite current price levels.
Goldman Sachs, however, presented a more optimistic outlook for the current winter, suggesting European prices could fall to 50 euro per MWh if LNG exports from the Persian Gulf improve. Despite this potential, the investment bank forecasts an average winter price of 70 euro per MWh, significantly higher than previous estimates. This projection assumes improved LNG exports, though the bank acknowledges the current levels are only 15%-25% of pre-conflict figures, necessitating higher prices for Europe to secure supply.
In response to high gas prices, European power generators are increasingly switching to coal. Reuters reported that coal consumption by utilities in Europe could rise by up to 25% in the next six months, as gas prices hit three-year highs. Meanwhile, the European Union's ban on Russian LNG imports, effective January, is expected to redirect flows from Yamal LNG to Asian markets, potentially at a discount.
The IGU has expressed concerns about stringent EU regulations, such as methane tracking requirements, potentially driving suppliers to other regions. Qatar and the United States have voiced opposition to these regulations, highlighting the ongoing tension between energy security and climate policy priorities.