The Global Gas and LNG markets will start normalizing after 2024 with loose market conditions likely starting in 2026 and persisting until the end of the decade. During this period, we expect European and LNG gas prices below the current strip ($12/mmbtu TTF cal-26) and historical average ($8/mmbtu TTF). EQNR and TTE will be negatively impacted, US gas producers will benefit from a tightening US market, large backlogs will protect services and shipping names.
One Last Hurrah for global gas. 2024 will be the last year of global LNG market tightness. Based on our demand forecasts (~4% CAGR 2022-30), the market will be balanced in 2025 and shift into a loose market in 2026. We are comfortable with cal-24 European and LNG prices (TTF ~$14/mmbtu), but we believe that cal-25 and 26 will have to reset 26% lower on average. Projects start-ups will reach record levels in 2025-27 (182mt of which US 79mt and Qatar 48mt), causing a sharp drop in FIDs after a strong 2024 (57mt of project sanctions expected).
Longer term growth prospects unchanged. While the recent high-price environment has damaged medium-term demand growth prospects, we continue to view gas as important to the energy transition and a substitute for coal as prices come down. Our long-term forecasts, consistent with 2-2.7°C global warming scenario, show gas demand continuing to grow through 2040 and staying flat between 2040 and 2050. This will result in a LNG demand growing at a 4% CAGR during 2022-30, 3% CAGR during 2030-40 and 2% during 2040-50.
Winter weather risk abating. While an average European winter could still bring 2024 trough gas inventories sub-40bcm (23bcm or 37% below 2023) and provide incremental support to 2024 prices, this is becoming a low probability scenario. We forecast Europe exiting winter with 55bcm in storage (49% filled), 7bcm below 2023, keeping prices close to the fwd curve.
Areas of potential upside (and downside). Despite a cautious view on 2025-26 prices, we see areas of upside risk: 1) Further Russian supply cuts: up to 56bcm of Russian gas exports at risk in 2024; 2) Unplanned maintenance seems to be normalizing but its has been a source of surprise for the last 3 years; 3) We assume that some demand loss in Europe will be permanent, but lower gas prices could trigger a higher than expected demand response; 4) repricing and growth of LatAm gas supplies. What about downside risk? We see a low probability / high impact risk that potential peace negotiations between Ukraine and Russia could result in a return of Russian piped volumes to Europe.
Stock positioning. We identify several ways to gain stock exposure to these market dynamics:
- Oil Majors. We see EQNR and TTE as particularly vulnerable to lower spot gas prices in Europe / LNG. SHEL should be more protected, and we see low spot exposure for XOM / CVX.
- US E&Ps. The LNG build-out will create a sustained demand-pull that will support HH prices. We like AR, EQT, SWN, and CHK.
- US LNG Developers. We continue to see Cheniere (LNG) as the premier US LNG developer with largely de-risked medium-term growth and long-term option value.
- Energy Services. BKR, TE and SPM should continue to benefit from high level of contracts awards expected in 2024/2025.
- LNG Shipping. FLNG and CPLP are generally insulated from potential freight rate weakness given their backlogs are stretched 5-6 years on average.
- LatAm: We see PAM and CSAN (via its Compass Gas subsidiary) as key beneficiaries from Latin American gas growth opportunities.
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