Natural gas: Goldman Sachs revises Q3’22 forecast to the upside

Natural gas price in Europe has been on an uptrend as the previously evasive zone of 80 euros remains a steady support level. According to Goldman Sachs, this trend is set to continue into coming months given the persistent supply/demand imbalance.

European natural gas price surged by over 40% in the past week. Granted, the benchmark Dutch TTF futures have since eased from the one-and-a-half months high of 124.31 euros to 117.74 euros as at the time of writing. Even so, it remains on an uptrend, which Goldman Sachs expects to continue in coming month.

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Based on the supply/demand imbalance that continues to define the market, the investment bank’s forecast is for natural gas price to reach 104 euros in Q3’22. The figure is a significant adjustment from its prior forecast of 85 euros.

During an interview on Bloomberg Markets, Samanta Dart, Goldman Sachs’ Head of Natural Gas Research indicated, “the key to where prices go from here is really in the duration of these supply cuts from Russia.”

Indeed, the decision by the Freeport LNG company to shut its Texas facility for three months rather than the previously announced period of three weeks has been a key bullish driver of European natural gas price.

The situation has been worsened by the supply cuts from Russia. Last week, the state-run Gazprom company stated that it had further curbed its supplies through the crucial Nord Stream 1 pipeline. Europe receives about 40% of its natural gas supplies from Russia. As such, the supply cuts have heavily hit countries such as Germany, Italy, France, and Austria. For instance, Germany is set to offer incentives to firms with the intent of reducing their natural gas consumption. This also involves restarting coal-based power plants in a effort to ramp up inventories ahead of the winter season.

In addition to the prolonged outage at Freeport LNG facility and supply cuts by Russia, Europe is also face with a third challenge in the form of competition from Asian buyers. Countries such as Japan, China, and South Korea are also looking to build up on their inventories ahead of the winter period when demand for natural gas tends to be heightened.