Goldman Sachs has warned that liquefied natural gas (LNG) prices in Asia could surge above $20 per million British thermal units (mmBtu) if Europe faces a tightening gas supply this winter. Samantha Dart, co-head of global commodities research at Goldman Sachs, shared this outlook with reporters on Wednesday, highlighting concerns about Europe’s vulnerability and the potential for higher energy costs in Asia.
The analyst explained that Europe is facing significant challenges this winter due to a lack of spare capacity and the loss of residual Russian gas volumes that have been flowing through Ukraine. With the current transit deal set to expire at the end of the year, there is further uncertainty around gas availability for Europe. Dart also cited the possibility of a colder-than-average start to the winter season, which would place additional pressure on European gas supplies.
Goldman Sachs noted that several LNG supply projects across the Americas are facing delays, meaning Europe and Asia will have access to less LNG in 2024 than previously anticipated. This is expected to exacerbate the tight supply situation. “Europe is going to start next summer a lot tighter than this past summer,” Dart warned.
This supply crunch in Europe could have a direct impact on Asian LNG markets, as Asia is the world’s largest consumer of LNG, accounting for more than 60 per cent of global demand, while only producing just over 30 per cent of the total supply. Dart explained that Asia must source all the LNG it needs to fill this supply gap from the Atlantic Basin. As such, Asian LNG prices are closely tied to European natural gas prices. If Europe is struggling with supply, Asian LNG prices will likely remain elevated.
China, the world’s largest LNG importer, is expected to see record high imports of LNG in 2023, surpassing 80 million metric tonnes for the year. However, Goldman Sachs forecasts that the year-on-year growth for 2025 will not be as strong, as the country experiences more stable economic growth and its base consumption of gas increases. According to Chinese customs data, China imported 63.5 million tonnes of LNG in the first ten months of 2023, down from a record 78.89 million tonnes in 2021.
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The increasing use of natural gas in China is largely driven by the country’s power sector, which continues to grow at a rapid pace. However, Dart noted that this growth is also being constrained by the capacity limits of the Power of Siberia pipeline, which is nearing its maximum capacity. As a result, the rate of growth in Russian piped gas exports to China will likely slow in the coming years.
With the power sector in China being a major driver of LNG consumption, the country is expected to continue to rely heavily on LNG imports to meet its growing energy needs. Dart explained that despite efforts to diversify its energy mix with renewables and coal, China’s gas consumption is expected to increase significantly as the country’s overall energy demand expands. This trend will likely result in higher LNG imports at the margins, with natural gas playing a larger role in the country’s energy landscape, even if its share of total generation remains largely unchanged.
As global energy markets continue to face challenges, the outlook for both European and Asian LNG prices remains uncertain. With increasing demand from China and the tightening supply situation in Europe, the price dynamics of LNG are set to be influenced by these interlinked markets. The situation highlights the growing importance of energy security in both regions, as well as the need for diversified energy sources and the continued development of LNG infrastructure to meet the demands of a rapidly changing global energy landscape.
