Goldman Sachs: Increased production in Norway cannot solve the low winter gas storage levels in Northwest Europe; recovery of LNG supply from the Strait of Hormuz remains key

(1) Goldman Sachs stated that despite increased Norwegian natural gas production, unless Middle Eastern LNG supply rises, Northwest European natural gas reserves may still remain low during the winter. (2) Goldman Sachs analysts pointed out in a report that Norway's natural gas exports to Northwest Europe have rebounded to the 2022 highs; the increased Norwegian supply has raised Northwest Europe's gas storage level from 62% a week ago to 63%. (3) Goldman Sachs noted that LNG exports from the Persian Gulf will gradually recover throughout the winter, reaching 65% of pre-war levels by January 2027, but the market is increasingly pricing Middle Eastern supply uncertainties into the price. (4) The TTF contract expiring on December 26 is currently quoted at 88 euros/MWh, which indicates a 51% probability that average LNG flow through the Strait of Hormuz this winter will be only 25% of normal levels; this probability is up from 47% last week, but still well below Goldman Sachs’ baseline scenario forecast. (5) Goldman Sachs stated that more evidence showing recovery of LNG flow through the Strait of Hormuz is required before it can be determined that European natural gas prices will eliminate the Middle Eastern supply risk premium. (6) Goldman Sachs estimates that this Middle Eastern supply risk premium is 18 euros per MWh.