Goldman Sachs: Natural Gas - FJElite

European gas and LNG markets remain exposed to two major uncertainties: Middle Eastern supply disruptions and winter weather. TTF prices have been highly volatile, with a sharp sell-off following reports of potential diplomatic progress and a shift towards more neutral weather forecasts, reversing some of last week’s concerns over military escalation and a colder start to November. Despite maintaining the assumption that Qatari LNG exports reach operational capacity by February 2027, forecasts have been raised to €74/MWh for Q1 2027 and €51/MWh for the full-year average, reflecting a 45% probability of a tighter Middle Eastern supply scenario and a modest cold-weather premium.

Risks to 2027 forecasts remain skewed to the upside. A combination of reduced Middle Eastern LNG supply and a winter one standard deviation colder than average could push Q1 2027 TTF towards €150/MWh, while current pricing around €92/MWh implies the market assigns a 47% probability to this severe scenario. Conversely, warmer weather and supply recovering in line with the base case could bring prices down to €45/MWh, effectively removing the need for Europe to compete aggressively with other regions for LNG. Given the recent decline in Hormuz LNG flows, call spreads on Q1 2027 TTF remain an attractive hedge against a tight winter.

Beyond the immediate winter risks, the longer-term LNG outlook is becoming increasingly bearish as additional export capacity receives final investment approval. With long-dated TTF prices having risen substantially since the Iran conflict began, investors are advised to consider buying longer-dated puts, such as December 2029 contracts, to position for softer market balances further ahead.