Global Gas Market Summer Outlook and Price Update

The global gas market is biased towards tightness for the forthcoming summer, which we attribute to: Cold winter temperatures across key gas consuming geographies, which have resulted (both directly, via higher demand and indirectly, via the re-routing of flexible LNG flows) in a growing in ventory deficit in the European gas market . Higher North Asian demand over winter was effectively supplied via European storage, which will result in strong injection demand in NW Europe across the forthcoming summer season. The structural factor of lower LNG additions on a year-on-year basis as the five-year cycle of FID-first gas turns, given the low number of project FIDs from 2016. Whilst the year-on-year increase in LNG supply is substantial in 2021 as US LNG netbacks recover , there is a clear tightening into 2022. The reluctance by Gazprom to book additional Ukrainian transit, keeping supplies near the 2020 trend despite clear signals that the European gas market can accommodate additional supply. The impact of external fuels which is adding a n additional layer of complexity, with higher carbon prices in effect protecting a certain level of gas consumption in the power sector by raising the entire coal-gas switching channel . Higher oil prices also increase the cost of supply for oil-linked pipeline volumes , adding upside pressure in a supply-tight market . Our base case expects TTF prices at $7.30/MMBtu over SUM-21, with JKM at $8.10/MMBtu. Henry Hub is forecast averaging $2.85/MMBtu. We attach significant risk to this outlook given uncertainty regarding Russian pipeline supply through the season.