Goldman Sachs and its mysterious contrarian forecasts

The famous investment bank Goldman Sachs estimated on Tuesday that gas prices will be halved by the end of the year in Europe. An optimism that contrasts with the dark scenarios of generalized increases in energy prices this winter. But in the eyes of some economists, the analysis seems a bit simplistic.

Hear, hear: gas prices will drop by half in Europe by the end of the year, assures Goldman Sachs. Good news, to say the least surprising, that the famous American investment bank develops in an analysis note published on Tuesday, September 13. Europe would even have “solved the puzzle of the price of energy”, advances the establishment.

Goldman Sachs analysts predict, in fact, that the price of gas on the European market will rise from “215 euros/Mwh (megawatt-hour) at the end of this summer to less than 100 euros/Mwh in the first quarter of 2023″.

Goldman Sachs vs. Goldman Sachs

Enough to feed the hopes of European businesses and households not to see their electricity bills soar when winter comes. In the European Union, the price of electricity is set according to a clever calculation that leaves a large place to the cost of gas production, recalls BFMTV. If the price of this precious hydrocarbon collapses as predicted by Goldman Sachs, “this would imply that the black scenarios of an explosion in electricity bills this winter should not occur”, confirms Lawrence Haar, specialist in the economy. energy at the University of Brighton.

What also arouse doubtful pouts. Goldman Sachs is the lone wolf when it comes to good energy news. “I was very surprised. No one else in this sector anticipates such a price development”, recognizes Michael Bradshaw, specialist in energy issues at the University of Warwick. Discussions around gas and electricity prices are more about how to protect the economy against an inevitable rise in energy prices in Europe. A concern that was even at the heart of the speech, Wednesday, September 14, of the President of the European Commission, Ursula von der Leyen. In France too, Élisabeth Borne, the Prime Minister, assured that the government would limit the price increase to 15% in 2023.

Within Goldman Sachs itself, the tone of this new analysis note must have surprised more than one. Barely a week ago, this same bank published another article predicting that prices were going to stay high on the Old Continent.

Where does this turnaround come from? “We know that banks can tend to publish biased analysis notes in favor of their own investment strategy. So it’s a possibility not to be ruled out,” recognizes Lawrence Haar. But, in this case, this expert believes that this analysis note is based on a “rational” analysis of the situation.

Full gas tanks

Goldman Sachs bankers have seen a surprising development in the European gas market, both from a demand and supply perspective. On the one hand, “European gas storage facilities should be 90% full in October, more than the 80% that Brussels considers necessary in order not to have a shortage during the winter”, underlines Christopher Dent, specialist in energy policy issues at Edge Hill University, North Liverpool.

This race to prevent Moscow’s closing of the Nord Stream 1 and Yamal pipeline taps from depriving Europe of gas was won “by managing to buy more LNG gas [gaz naturel liquéfié, NDLR] than expected”, notes Christopher Dent. In other words, the major LNG exporting countries (Qatar, Malaysia, Australia and even the United States) have increased their deliveries to Europe.

On the other hand, the bankers at Goldman Sachs “anticipate a destruction of gas demand greater than expected”, notes Christopher Dent. Between measures in favor of energy sobriety and an effort to make greater use of renewable energies, the European economy should be less dependent on gas. And when there is stronger than expected supply and falling demand, the result is usually lower prices.

But for many observers, it is a “simplistic and very short-term analysis of the situation”, affirms in particular Nicolas Goldberg, energy expert at Colombus Consulting. First, the faith placed by Goldman Sachs bankers in the effectiveness of calls for energy sobriety “is very optimistic and nothing says that it will be strictly respected”, specifies Christopher Dent.

What about the weather?

In addition, the analysis note makes no mention of the weather, whereas “it is a determining factor to have an idea of ​​​​the evolution of prices”, affirms Nicolas Goldberg. If it is very cold and there is little or no wind, for example, there will be less energy from wind turbines and households will tend to heat more. Two factors that could then have a significant impact on the demand for gas and therefore the price.

“If Goldman Sachs has a reliable weather reference capable of forecasting the weather between now and the beginning of next year, I’m interested and I could start to believe in these projections”, affirms Nicolas Goldberg.

This is all the more unlikely since “global warming has made the exercise of weather forecasts even more difficult, which further weakens all estimates of changes in gas prices”, adds Christopher Dent.

A longer term problem

Not to mention that the price of liquefied natural gas can fluctuate due to factors that have nothing to do with supply and demand in Europe. “If for some reason Asia needs more LNG gas, they will offer a higher price to secure their supply, which will force Europe to match these prices”, explains Michael Bradshaw.

“The price of gas is the result of a much more complex alchemy than the conclusions of the analysis note published by Goldman Sachs suggest,” says this expert from the University of Warwick. However, he does not exclude that this scenario of a drastic fall in prices will come true, but “the chances are slim”.

And then, it would not necessarily be a panacea for the European economy. “It would obviously be good for the consumer, but not necessarily for the other players in the economy”, nuances Michael Bradshaw. First, if prices fall drastically, operators of gas storage facilities will have a very painful winter because they themselves will have bought the precious hydrocarbon at gold prices this summer.

Next, “the references to demand destruction made by Goldman Sachs are a polite way of pointing out that part of the business that required gas [il ne sert pas seulement à produire de l’électricité, mais aussi, par exemple, pour la fabrication d’engrais ou dans le processus de raffinage, NDLR] no longer exist”, underlines Michael Bradshaw. Again, this is not good news for economic activity.

But above all, “we may have managed the gas supply for this winter, but what about for the next few years?”, underlines Nicolas Goldberg. How will we manage to replenish stocks next summer if Russia continues not to supply gas to Europe? Indeed, “there is simply not enough liquefied natural gas on the market to compensate for the loss of Russian supplies”, says Michael Bradshaw. In other words, Europe may have partly solved the energy price puzzle this year, but certainly not that of its dependence on Russia.

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