Morgan Stanley increases LNG price forecast
Posted: Mon Oct 10, 2022 3:14 pm
Assessing the 2023 Setup - Tighter Conditions Ahead?
High EU gas prices have attracted record LNG, refilling storage
ahead of the winter. Looking into 2023, lack of Nord Stream
flows raises Europe's call on LNG, while rest-of-world changes
are more mixed. We refresh our LNG balances - near-term
price forecasts are unchanged, but we raise 2H23-24.
As geopolitical pressures persist, our LNG balance tightens further. Since our
last global gas update (see As Russian Flows Fall, the "Call on LNG" Rises), record
European LNG imports and falling industrial consumption have helped normalize
EU storage levels despite further declines in Russia pipeline flows (more here &
here). Globally, these high LNG flows into Europe have been supported by weak
demand from buyers in Asia, with China the biggest outlier. We are refreshing our
global LNG supply/demand forecasts to account for the latest market
developments, including an assumption of zero flows on the Nord Stream 1
pipeline going forward (consistent with EU gas strategist Martijn Rats' base case).
While the near-term setup into this winter seems manageable due to adequate
global inventories, we see a rising deficit next year, and our 2023 supply shortfall
is increasing from ~30 mt (7% of demand) to ~58 mt (13% of demand).
Accordingly, our near-term price forecasts are unchanged but we are raising
2H23-2024, as we see the need for prices to remain elevated for longer to
continue constraining demand. < This matches Raymond James view for 2023.
Outlook: 2023 tightens further. Looking into next year, we are forecasting ~20
mt of additional supply, but the global "call on LNG" is likely to rise much more
than this. In Asia, the setup is mixed. China reopening should tighten up the
market (+10 mt y/y), but we see some offsets due to lack of growth in more price
sensitive markets in India & SE Asia and the potential restart of nuclear power
plants in Japan. That said, this is outweighed by Europe's additional LNG import
needs (+49 mt y/y).
High EU gas prices have attracted record LNG, refilling storage
ahead of the winter. Looking into 2023, lack of Nord Stream
flows raises Europe's call on LNG, while rest-of-world changes
are more mixed. We refresh our LNG balances - near-term
price forecasts are unchanged, but we raise 2H23-24.
As geopolitical pressures persist, our LNG balance tightens further. Since our
last global gas update (see As Russian Flows Fall, the "Call on LNG" Rises), record
European LNG imports and falling industrial consumption have helped normalize
EU storage levels despite further declines in Russia pipeline flows (more here &
here). Globally, these high LNG flows into Europe have been supported by weak
demand from buyers in Asia, with China the biggest outlier. We are refreshing our
global LNG supply/demand forecasts to account for the latest market
developments, including an assumption of zero flows on the Nord Stream 1
pipeline going forward (consistent with EU gas strategist Martijn Rats' base case).
While the near-term setup into this winter seems manageable due to adequate
global inventories, we see a rising deficit next year, and our 2023 supply shortfall
is increasing from ~30 mt (7% of demand) to ~58 mt (13% of demand).
Accordingly, our near-term price forecasts are unchanged but we are raising
2H23-2024, as we see the need for prices to remain elevated for longer to
continue constraining demand. < This matches Raymond James view for 2023.
Outlook: 2023 tightens further. Looking into next year, we are forecasting ~20
mt of additional supply, but the global "call on LNG" is likely to rise much more
than this. In Asia, the setup is mixed. China reopening should tighten up the
market (+10 mt y/y), but we see some offsets due to lack of growth in more price
sensitive markets in India & SE Asia and the potential restart of nuclear power
plants in Japan. That said, this is outweighed by Europe's additional LNG import
needs (+49 mt y/y).