Global Commodities: Running the Numbers on Gas

Hello, and welcome to another episode of At Any Rate. I'm your host, Artem Fakhrudinov, and I am an oil analyst at J.P. Morgan's Global Commodities Research Team.

It is day 56 of a conflict in the Middle East, and disruptions persist in commodities markets. This week has been particularly intense, with the world paying very close attention to the effectiveness of the U.S. blockade, the likelihood of renewed airstrikes, as well as demand destruction. But now it seems like the diplomatic process has stalled and no immediate resolution is in sight.

Fortunately for global markets, though, the clock is ticking. Even though the Strait of Hormuz was briefly declared open over the weekend, it has since been closed again, and flows remain at a minimum. Absent deliveries from the Persian Gulf, supply and demand for commodities must balance, either through inventory use or reductions in demand, both of which have started to take place.

Today, we will focus on gas, and we're joined today by Otar Gawadze, who leads European natural gas research at J.P. Morgan. Otar, thank you so much for joining me.

Hi, Artem. Welcome to the podcast. Thank you.

Otar, what are some of the fundamentals on the ground? I know you're getting a lot of questions from clients on that side of things. Yes.

So you mentioned the short reopening of Hormuz. Despite some transit happening at the end of last week, we didn't see any LNG vessels transiting through Hormuz. So it's still 16 vessels that remain in the Strait.

There were 17 at the beginning of the conflict. One of them left, which was empty tanker on 2nd of April, and that's the only observed LNG transit through the Strait. However, the shipping actually happens within the Strait.

As we estimate, there was at least seven LNG cargos delivered to Kuwait, which was loaded through a combination of Qatar storage facilities and potentially through restarted Qatari trains with some limited activity. So as we understand, I mean, we all well know that Qatar has 14 LNG trains. Out of that, seven is in the south side, which is known as Raskas.

Out of the two is damaged. And another seven is on the north side, which is called Qatargas. And seven of all the seven of them are technically undamaged.

So as we understand, the first three trains of north side has been restarted. But this is relatively smaller trains. So the total capacity of these three trains is about 10 MTPA, which is about 13, 14 percent of total Qatar capacity.

As we understand, these trains do not are not running at full capacity. Some of the production is filled into storage tanks and some of the production is exported to Kuwait. So Qatar has kind of started the preparatory work and started to rebuild the storages for that.

When the day comes, they can return some volumes, which will still be relatively limited volumes to the market relatively quickly. And Otar, could you please remind our listeners, how long can it take Qatar to rebuild, rebuild supply when what it needs to? So our estimate is something between two to three months.

So we estimated from the start from the first liquefaction, it will take about 15 days or two weeks to restart Qatargas site north side, which is about half of the production. And there may be another month to month and a half to get to something like 80 percent utilization. As you know, 17 percent is damaged.

So that's out of question for near term. But it's about two to three months, which is relatively consistent from other industry sources, from the commentary from Qatar Energy itself. The difficulty in this timeline is when is the day zero and where we currently, as I said, some trains are already running.

Should we expect that in two weeks we will be at 50 percent? I don't see. So if we have a meaningful change on the ground, but that's the timeline, roughly two to three months.

And you also mentioned inventories within Qatar. How do inventories and maybe overall, what does the balancing look like for the market at the moment, given that so much supply has been has been lost? So there is, as I said, about 16 vessels, which is which is if all of them are loaded, it's about 16 cargos.

And on top of that, Qatar storage capacity is equivalent to also another maybe another up to 15 cargos. So at most, there might be 30 cargos that, let's say half of them roughly loaded, roughly half of them to be loaded, which is, let's say, let's call it ready to ship LNG volumes. Now, storages will not be 100 percent full and storages will not go to zero percent full.

So that 15 cargos in onshore storage is in reality, it's probably closer to 10 cargos or so. So that's the immediately available volumes apart. After that, you need to restart the operations, which, as we said, will take two to three months to get to 80 percent.

But meanwhile, you will still have some operations, some loadings. But to get to 80 percent, yeah, two to three months with relatively limited storage to be shipped. And how have other regions been responding to the supply loss?

There must have been some rebalancing being done at the markets. Yes, so Qatar and UAE supply loss is about 300 MCM per day in March and April. Out of that, about 100 MCM per day has actually been replaced from other supply, sorry, from the US supply, which as we've been flagging from the onset of the conflict, does have an official, does have a potential to replace up to half of lost Qatari volumes in addition to other alternative supply sources.

So we see about 100 from US, about 20 to 30 MCM per day from other suppliers like Malaysia, for example, which might be a bit surprising and driven by relatively high maintenance around this time last year. So year over year, their volumes are high. We see more volumes from Africa, from relatively new, newly started projects.

We had some issues in Australia on cyclones, but this has been more or less offset. So net, net, rest of US, rest of outside US, outside Qatar, about 20, 30 MCM per day offset, which leaves about 170 to 180 MCM per day of lost supply, which will, which is being absorbed by demand. In, in March, part of it has been offset by floating storage.

So all the cargoes that have been on the water, which have been delivered throughout March, and the biggest, biggest demand decline we saw was actually in China, which I think is understandable given the relatively high spot prices. In April, obviously all of these cargoes in transit have already been delivered. So we see more impact on, on demand.

And we see again, demand primarily in Asia. So out of the 170, 180 MCM per day, demand destruction, about 130 is materializing in, in Asia, and then another 50 or so in Europe. Actually, demand in Egypt is up.

And then the remaining is all the other relatively smaller importers like Latin America, Africa, et cetera. So that's how the market has been rebalanced so far. Going forward, we expect the demand destruction to accelerate in Asia and decelerate in Europe.

And for that, we need higher prices. Got it. And one of the things in oil, for example, that is interesting with demand destruction is that a lot of oil uses are very hard to substitute.

So for example, when I'm putting gasoline into my vehicle, there's very little substitutes available other than that very gasoline. So the elasticity is a very low. Would you say that for gas, elasticity is much higher, which is why we haven't seen prices rise as much as maybe some people expected?

No, actually gas elasticity is much higher than oil, but also gas substitutability is much higher. So a lot of gas demand has been substituted by coal. And that's the question that we hear a lot, like why we don't see prices significantly higher comparable to levels observed in 2022.

And then one of the many reasons is coal. Coal inventories are much, much healthier today than it was in 2022. In 2022, U.S. coal inventories were at five-year lows.

Today, they are about 20-25% higher. In China, coal inventories are about seven to eight times higher compared to 2022. And that's why you see much more muted price moves in coal market.

Actually, coal prices today in Rotterdam is down compared to 28th of February, compared to oil and gas prices, which are up something like 40% on average. That's why you don't see transmission into U.S. Henry Hub.

We've discussed this in one of the previous episodes as well. So that's one thing, that the demand disruption is happening in relatively lower affordability market. So they are not beating up like something similar to your observations in oil.

And also part of the demand is switched to coal, which has much better availability compared to last supply shock. Thank you so much. And just lastly, in terms of the price outlook and what you're expecting for the future, I know we've talked about this plenty in some of our previous episodes, but can you please remind us what is your price outlook for the summer and winter when demand is highest?

Is there going to be any problems that we'll be observing? Yeah, so our price outlook is based on the assumption and simple modeling that Qatar volumes are not available in summer and they are fully available in winter, the remaining capacity. Based on that, we think prices need to go higher.

And as we mentioned, need to go higher for two reasons, to incentivize coal to gas switching, gas to coal switching in Europe and to disincentivize gas demand in Asia. For example, last week, I think is a great example when we saw a weak performance from renewables and the gap was filled by coal instead of gas because gas prices were at 38 euros closing on Friday. At the same time, carbon prices were up about seven, eight percent week over week, which made coal more, sorry, which made gas more profitable to use in the power sector compared to coal.

There is flexibility. We estimate there is something like 10 plus BCM of flexibility in European power system to substitute gas to coal. But for that, we need commercial incentives, which are higher gas prices and or lower carbon prices.

But primary weight will come on gas. So our official forecast is 55 and 60 euro in Q2, Q3. And I think that's the range that we are looking for the injection season, 50 to 60 for Europe to attract enough LNG cargoes to fill its storages to about 80 percent ahead of next winter.

Thank you so much. Very interesting. Really appreciate you joining me.

To our listeners, thank you for tuning into the commodities edition of J.P. Morgan's At Any Rate podcast. We look forward to continuing the conversation next week.

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Morgan Chase & Company All Rights Reserved. This episode was recorded on April 24th, 2026.