Analysts at HSBC provided detailed price forecasts in a note this week, indicating that the European gas market is approaching a new equilibrium.
Gas prices have been higher than expected in recent weeks, with the Transfer of Title Facility (TTF) benchmark exceeding US$10 per million Btu, the highest since January. Supply disruptions such as extended outages at the Freeport LNG plant and maintenance at the Gorgon plant, as well as geopolitical risks, contributed to the increase, the bank said.
Despite these challenges, analysts note that inventories in Europe are well stocked, with current levels at 64% compared to the historical average of 43%. Gas demand remains low and non-gas power generation is robust, suggesting only a modest decline in gas prices should geopolitical tensions ease. HSBC maintains forecast at US$9/mBtu for summer 2024.
The bank’s analysts said: “The European gas market is on track to find a new normal, two years after Russia’s invasion of Ukraine.”
Despite this, the winter of 2024/25 is expected to be the last difficult period for Europe before new LNG supplies begin between 2025 and 2028, primarily from the US and Qatar.
This influx of LNG is expected to lead to an oversupply market starting in 2026 and potentially lasting until the end of the decade. The timing of this glut is unclear, but HSBC predicts it is highly likely given the robust supply growth from key producers.
Over the longer term, the market is expected to rebalance with increased demand for LNG from price-sensitive Asian countries and reduced flexible exports from the US. This could lead to lower summer prices, potentially reducing the cash cost of US LNG to around $5-$6/mBTU.
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