China’s gas destocking signals stronger LNG imports ahead of winter, reinforcing upside risks to European gas prices, particularly if disruptions to Hormuz energy flows persist, Goldman Sachs said in a note on Thursday.
* The bank said that China’s April gas demand was marginally down year-over-year at 379 billion cubic meters per year (Bcm/y) missing its expectations by 8 Bcm/y, adding that despite the demand weakness, China’s gas storage building was less than expected, taking inventories down y-o-y for the first time in several years.
* This suggests that higher LNG imports will likely be needed sequentially for China to manage its inventories back up year-over-year ahead of the next winter, Goldman Sachs added.
* The bank expects TTF prices potentially reaching 65 euros per megawatt-hour in the third quarter and 53 EUR/MWh in the fourth quarter this year if energy flow normalization in the Strait of Hormuz is delayed to late July and advised gas consumers in Europe and Asia to hedge winter exposure.
* High-frequency data on China’s LNG imports for May shows a closing gap with last year’s levels, and the Asia LNG price premium to European gas remains strong, incentivizing supply re-routes from the Atlantic to the Pacific, Goldman Sachs added.
(Reporting by Pooja Menon in Bengaluru; Editing by Kim Coghill)