Despite easing in LNG prices, the energy crisis has not yet been resolved, says Goldman Sachs. Getty Images
Goldman Sachs warned that Europe’s energy crisis is not yet resolved, even as LNG prices fall.
Europe still has a structural natural gas deficit and needs to make up for lost Russian imports.
European LNG prices have fallen 37 percent since November, but this is partly due to a decline in demand.
The energy crisis in Europe and the extreme cost of fuel became the dominant theme in the two years after the start of the Ukraine war. But falling LPG prices had dampened concerns recently.
The warm weather and changing trade flows were an encouraging sign. This winter was the second warmest in the last decade and European gas prices have fallen 37 percent since November, allowing Europe to build up a significant stockpile of the fuel.
But Goldman Sachs strategists are not convinced that the continent is safe. “While the drop in gas prices may give the impression that Europe has solved its energy crisis, we believe that the crisis is not yet over and we will have to endure another winter before the risk of a renewed rise in gas prices is completely eliminated,” the company’s strategists wrote in a statement on Thursday.
In their view, improvements in short-term LNG supplies have not eliminated the structural deficit and lost imports from Russia. Prices, in turn, remain vulnerable to supply disruptions or fluctuations in demand.
“This winter was one of the warmest in recent history,” argue the analysts. The graphs show the cumulative number of days on which heating is required since 2013. Goldman Sachs
“European gas still has a winter ahead of it,” strategists said, as the cold weather could lead to a surge in demand, depleting inventories and driving up prices.
More than 60 percent of consumer demand is for weather-dependent heating, they note. By their estimates, a winter that is one standard deviation colder – about one degree Celsius below average – could increase demand worth about 12 percent of storage capacity.
Stock levels are above seasonal norms, allowing for comfortable stocking for the summer. But the next winter is just around the corner and the storage systems must reach full capacity before the colder months. Not only has Europe failed to fully compensate for the roughly 20 percent of lost supplies from Russia, but the recent drop in LNG prices is due to falling demand rather than higher supply, according to Goldman Sachs.
“Europe is still in a structural deficit,” the analysts write. “It relies on a collapse in demand.” Goldman Sachs
Beyond this year, Goldman predicts new LNG export projects could come online in 2025, leading to an increase in global LNG supply and moving markets toward oversupply.
“If significantly more LNG is available, Europe will no longer have to crowd out price-sensitive buyers in the rest of the world in order to ensure sufficient imports. It will be able to meet increasing domestic demand, resulting in sustained lower LNG and European gas prices,” said Goldman strategists.
If this proves true, the winter of 2025-2026 should offer a “comfortable supply background”.
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