Global Gas Squeeze Could Last Through Next Summer

Global natural gas supply is expected to remain constrained until at least next summer, potentially leading to prolonged demand destruction, particularly affecting Europe and Asia. The International Gas Union (IGU), representing 90% of world gas producers, predicts this scenario could severely impact Europe, which is already struggling to meet its winter gas requirements before the heating season begins.

Menelaos Ydreos, IGU's secretary general, told Reuters that Europe is outbidding Asia for gas due to the need to replenish storage levels. While demand has already been reduced due to price inflation, it remains uncertain whether this is a temporary dip or permanent destruction. Economic Monitor reports suggest that Asian countries are still constructing gas-fired power plants and increasing LNG import capacity despite the price surge.

However, Goldman Sachs remains optimistic about gas demand in the long term, predicting European gas prices could drop from around 70 euro per MWh to 50 euro per MWh if Persian Gulf LNG exports improve. Currently, Persian Gulf LNG exports are only at 15-25% of pre-war levels, and if they do not improve, European gas prices will need to rise to compete with other LNG importers.

European coal consumption by power utilities may surge by up to 25% over the next six months due to high gas prices, reaching 80 euros per MWh. The European Union has banned Russian LNG imports, which could tighten supply but may be offset by increased Russian LNG availability for Asia. However, the EU's climate change agenda poses another challenge to gas supply security, as its stringent regulations may deter the industry from complying.