Europe’s natural gas storage inventories continue to rise at some of the fastest rates on record as an influx of liquefied natural gas (LNG) cargoes lands on the continent to take advantage of strong prices.

Storage stocks are at roughly 40% of capacity, which is below the five-year average of about 45%, but roughly aligned with the previous 10-year average. Injections have accelerated since the beginning of April, according to data from Gas Infrastructure Europe.

The shift by the European Union (EU) away from Russian fossil fuels after the invasion of Ukraine, combined with the need to refill depleted storage inventories after winter and lackluster demand in Asia, is driving more LNG cargoes to Europe.

Demand for delivery slots remains strong, prompting sellers without terminal capacity to offer LNG at discounted rates to secure it. 

Spark Commodities’ front-month Northwest Europe LNG basis, which assesses the difference between physical cargoes delivered ex-ship and the Title Transfer Facility (TTF) benchmark, is at negative $8.805/MMBtu. Spark’s front-month Southwest Europe LNG basis is at negative $8.110. 

Spark Commodities CEO Tim Mendelssohn told NGI that both were record discounts to TTF, given the high demand for delivery slots. He added that strong near-term demand from the race to move cargoes into Europe and the need to secure ships for winter deliveries were also pushing vessel rates higher. 

“Rates continue their upward trajectory and owners are increasingly including positioning payments in their offers,” said shipbroker Fearnleys AS in a note to clients. “This is not to say that winter has arrived, rather the market is wrestling with the innate inefficiencies of Europe being the premium market for the sixth month in a row.”

NGI calculations show that three out of four U.S. LNG cargoes moved to Europe in March to take advantage of higher prices –  a trend that has persisted since January. 

Europe Still On Top

Europe is seen dominating the market for now. Japan-Korea Marker prompt futures have traded at a discount of up to $9.00 to TTF over the last week. 

Asian prices are weak largely because of a lack of demand in China. Covid-19 lockdowns and less interest in spot shipments are weighing on prices there, Trident LNG’s Toby Copson, global head of LNG trading in Shanghai, told NGI. 

“The Chinese main players, we believe, will continue to sit out of the spot market, making do with what they have in storage, piped [gas] and coal as alternative power generation during the decreased demand from ongoing lockdowns,” he said.

In Europe, prices retreated last week after Russian deliveries through Ukraine stabilized. The Ukrainian gas grid operator on May 10 moved to suspend service at a critical transit point because of Russia’s military aggression. 

Prices declined again Monday after the European Commission (EC) offered guidance that EU members could comply with a Kremlin requirement to pay for gas in rubles. The EC said complying with the decree issued in late March would not violate sanctions imposed on Russia. The Commission said buyers would fulfill their purchasing obligations once they submit euros or dollars for payment.

Russia has already stopped natural gas deliveries to Poland and Bulgaria for not complying with the ruble payment process. A lack of clarity about how buyers should comply with the process has kept the market volatile.

Russia is requiring buyers to open two bank accounts at Gazprombank. One is to deposit payments in euros or dollars that are converted into rubles. The rubles are then deposited into the second account. Following the EC’s guidance, Eni SpA said Tuesday it is complying with the process even though its gas supply contracts with Russia do not require it.

Uncertainty Reigns

The market still remains on edge over the possibility of further Russian gas supply disruptions, which is keeping prices elevated. Russian electricity exports to Finland were cut off over the weekend. The specter of a gas shut off still looms as both Finland and Sweden attempt to join the North Atlantic Treaty Organization.

“This adds further uncertainty to the market, following the sanctions on Gazprom units and other companies based in countries that have imposed sanctions on Russia, and following the force majeure at Ukraine’s key transit pipeline Sokhranivka last week,” said Rystad Energy analyst Wei Xiong. 

Russia slapped sanctions last week on the Polish section of the Yamal pipeline and a former Gazprom PJSC unit in Germany that serves European gas demand. Moreover,  Russia booked no additional capacity at a monthly auction on Monday to move gas through Ukraine in June. Month-ahead auctions for the Yamal-Europe pipeline were also canceled. Russian pipeline shipments to Europe were lower on Monday as well.

The continent was expected to publish a plan Wednesday to reduce its reliance on Russian gas supplies, which pushed prices higher Tuesday. The TTF June contract gained by less than $1 to finish at $29.11. 

In the UK, however, the influx of LNG has pushed the National Balancing Point (NBP) benchmark to some of its lowest levels in more than a year. NBP was trading in a range below $20.00 until this week. The country does not have enough storage capacity to fully utilize all the LNG arriving. Prices have ticked up on those concerns. 

Meanwhile, in the United States, Henry Hub surged above $8.00 on Tuesday. Temperatures were heating up in parts of the country, while storage levels remained weak and production has failed to keep pace. U.S. LNG exports also remain strong on international demand. 

Crude oil prices have given up little ground as well, with the prompt contract trading at an intraday high of more than $115/bbl on Tuesday. Russia’s struggles to sell its oil and subdued global production have kept crude elevated. 

“Longer-term, the path towards lower [oil] prices continues to rest on stronger production growth, which has been complicated by Russia’s recent tumble,” said Schneider Electric analyst Robbie Fraser. “Still, U.S. producers are positioned for growth, albeit at a slower pace relative to history. To that end, rig counts continuing to trend higher should give the market pause before attempting a renewed test of recent highs.”