Predictions of a heatwave over the summer spell bad news for energy prices next winter as demand for air conditioning might sap the supply of LNG, according to analysts at Liberum.
On a day when researchers issued a new warning that global warming will breach the 1.5c threshold between now and 2027, Liberum said that forecasts this year are for above-average temperatures pretty much everywhere during the summer.
“This of course could drive power demand for cooling and hence a higher call on gas / LNG," it said.
“One important factor is that, if the forecast comes to fruition both East Asia and Europe would face a simultaneous pull on power which could drive more aggressive buying behaviours in the LNG spot market.
A big bet is on
“China is already warning of Northern hemisphere summer power shortages,” added the broker, but with LNG floating storage at the top end of the five-year average, there is a big divergence in views, with a lot of money riding on which way it falls.
Gas prices in Europe have tumbled since the peaks of eight months ago when Russia cut off supplies, as weaker-than-expected demand and a mild winter allowed Europe's stocks to build.
Price bulls believe that LNG demand will tighten in both Asia and Europe but those betting against don’t.
As always, says the broker, weather is all important as is energy security.
If Chinese, Japanese and Korean planners decide that they need to fill the tanks for a hotter-than-usual summer, that, and the risk of a cold winter thereafter with competition from Europe, will push gas prices higher again.