Goldman Sachs has flipped on their bearish natural gas stance to a bullish one.
Goldman’s Samantha Dart’s reasoning behind the view shift is due to a combination of factors including “supply disruptions, shipping delays, and strong LNG demand, supported by heavy nuclear maintenance in Japan and a cold start of the year in NE Asia, have significantly tightened the LNG market.”
Prices of the supercooled fuel in especially Asia have reached astronomic heights in recent days. The most critical LNG markets are in Asia and Europe, which comes as a polar vortex split that has dumped Arctic air in both regions, boosting natgas prices.
“TTF price forecasts skewed to the upside,” Goldman said, adding that it’s due to “weather-driven tightness realized thus far.”
We see risks to our revised TTF price forecasts skewed to the upside as, given the LNG and weather-driven tightness realized thus far, we believe that even a warm turn to the weather would not be enough to take this year’s storage path towards a capacity breach. This effectively eliminates the risk that TTF may need to sell off this winter to once again close the US LNG export arb.
Hence, with warm weather risks less relevant, we update our weather scenario analysis to focus on colder-than-average scenarios only. Importantly, our previous iteration of this analysis had already shown the explosive potential for TTF prices. -Goldman
Colder weather in Europe has also resulted in Spanish natgas prices hitting a record high.
The colder weather in Europe has driven power prices to record highs. About 40% of the electricity consumed in the continent comes from fossil fuels, such as natgas.
In the UK, day-ahead 5-6pm electricity prices just zoomed to an all-time high many, many, but really many times above normal auction levels (see 2010-2021 chart below).