Fitch Ratings has increased its short and medium term gas price assumptions, based on an assumption of no further Russian supplies into the European Union.
Fitch now assumes TTF, the Netherlands’ price marker, will average $45 this year, up from the previous estimate of $25. It will remain at the elevated price in 2023, the ratings agency said, up from the previous figure of $15. It will then fall to $20 in 2024 and $10 in 2025, Fitch said.
“Lower demand and higher LNG imports are vital for the avoidance of acute shortages in Europe,” Fitch said.
It also raised assumptions on Henry Hub, in the US, but to a smaller extent. The US benchmark is forecast to average $7 this year, up from $6.25, and $5 in 2023.
Henry Hub has become a de facto LNG export price, while TTF is seen as the price to secure foreign supplies.
European gas demand was down 11% in the first five months of the year. Higher prices helped boost LNG imports into the group, up to 75 billion cubic metres to August – an increase of 62% from 2021.
What’s in store
The EU has made good progress in filling gas storage ahead of the November 1 target. However, this is insufficient to cover total consumption. As a result, the EU will need to continue importing LNG into the medium term, which will support prices.
The Fitch forecasts stand in stark contrast to recent analysis from Goldman Sachs. The latter, in a note this week, said prices would fall by around half over the next six months.
High storage levels, Goldman said, would remain despite higher than average withdrawals. Assuming an averagely cold winter, prices will rise amid “market relief”, in a counterbalance to the current mood of demand destruction.
“In the longer term the gas supply crisis will help remove bottlenecks in LNG and pipeline infrastructure and accelerate the energy transition and energy savings initiatives in Europe,” Fitch said. As a result, it has kept its longer term gas price expectations unchanged.
US production is growing, helping to moderate prices at Henry Hub. However, infrastructure will continue to constrain exports.
While gas prices are up, Fitch also cut its expectations for oil. Brent will average $100 this year and WTI $95, both a reduction of $5 from previous.
Fitch said concerns around economic growth had reduced its oil price assumptions. US production is on the rise, it said, due to add 900,000 barrels per day by the end of this year and with a similar rise in 2023.