Global Gas Shortage Threatens Demand Destruction Through Next Summer

The global natural gas supply is likely to remain tight until next summer, potentially causing prolonged demand destruction. The International Gas Union (IGU) predicts this scenario due to the ongoing conflict in the Middle East.

Europe's gas storage levels are being filled at a higher cost than usual, with prices surging to 80 euros per MWh. This has led to some demand destruction, but it is unclear whether this will be temporary or permanent. The IGU notes that countries in Southeast Asia are still building natural gas-fired power plants and increasing their LNG import capacity despite the price inflation.

Goldman Sachs expects European gas prices to average 70 euros per MWh, significantly higher than its previous forecast of between 30-60 euros per MWh. The bank attributes this increase to the limited exports of liquefied natural gas from the Persian Gulf, which are currently at only 15-25% of their pre-war levels.

The European Union's ban on Russian LNG imports will redirect some flows to Asia, tightening supply in Europe but also increasing prices there. The IGU's secretary general notes that regulations must be achievable and practical for the industry to comply, or else they may seek other regions to send their product.