Natural gas prices in Europe and Asia soared Monday as supply concerns deepened and the regions are seen competing for liquefied natural gas (LNG) cargoes beyond the winter.
British and Dutch front-month futures gained nearly $3 each to finish above $38/MMBtu, hitting levels not seen in months. Asian spot prices, meanwhile, gained almost $2 to finish above $37/MMBtu Monday. The gains came on the back of a sharp rise in prompt prices last week as well as those further down the curve into summer 2022. Forward prices were up again Monday, too.
“This is proof that the market expects the current competition between Europeans and Asians to attract LNG cargoes to extend into summer 2022,” Engie EnergyScan analysts said in a note Monday.
European prices haven’t been this high since October. It’s now more profitable to send U.S. LNG to the continent than it is to Asia by a narrow margin, with cargoes headed to Europe fetching about 61 cents more than those going to Asia, according to NGI calculations made Friday.
European storage inventories were at nearly 63% of capacity over the weekend, a level typically seen later in winter and well below the five-year average of 80% for this time of year. Buyers on the continent have faced stiff competition from those in Asia, who have aggressively secured supplies ahead of peak winter demand. LNG deliveries to Europe declined 5.5% last week to 1.31 billion cubic meters, according to Schneider Electric.
Concerns over whether Russia can help to fill the void by exporting more natural gas to the continent via pipeline continue to pervade the market. The prospect of international sanctions against Russia, including the possibility that Gazprom PJSC could be prevented from starting up its Nord Stream 2 (NS2) pipeline, has spooked the market. European Union (EU) foreign ministers met in Brussels Monday to discuss options as Russia has built up military forces on the Ukrainian border.
NS2, which would move 5.3 Bcf/d from Russia to Germany, is complete but it still needs to be certified by German regulators and the EU.
An outage at the Troll field offshore Norway that cut European flows last Wednesday was also supporting prices as imports remained weak Monday. Colder weather is also forecast for southern and central Europe in the next six to 10 days, according to Maxar’s Weather Desk.
While severe cold on the continent has so far been sporadic and is forecasted to remain inconsistent this winter, Tudor, Pickering, Holt & Co. said European storage inventories have continued to draw down above average pace. TPH said storage has declined by 122 Bcf so far in December, compared to the five-year average draw of 118 Bcf.
“If European gas storages reach critically low levels by the end of winter 2021-22, the market might end up in a similar situation next summer, relying on Russian gas exports and LNG to refill storage ahead of winter 2022-23,” added Schneider Electric analyst Aidana Childebayeva.
Astronomically high energy prices are being felt across the continent. Norway said over the weekend that it would subsidize electricity prices by paying a portion of consumer bills between December and March, joining other European nations that implemented or proposed similar plans in recent weeks as costs have soared.
Romanian fertilizer producer Azomures said last week that it would temporarily halt production due to high natural gas and power prices. Azomures is the latest European industrial consumer on the continent to slow or stop production due to record-high energy costs this year.
In Asia, spot prices have been fairly stable as buyers in Japan and China have stockpiled supplies for the winter. But plant outages at Gorgon LNG and the Prelude floating LNG (FLNG) terminal in Australia and inclement weather could increase buying.
“Though the market initially shrugged off the supply impact of the unplanned shutdowns at Gorgon LNG Train 3 and the Prelude FLNG, we expect supply concerns to take hold soon if outages are prolonged and offtakers are forced to short cover or find replacement cargoes,” said Rystad Energy analyst Wei Xiong.
A drought in China’s Guangdong province has also limited hydropower electricity generation there, which could increase the need for other energy sources.
In the United States, Henry Hub prices saw gains throughout last week, but remained below $4/MMBtu. Prices jumped toward the end of the week on a colder weather outlook.
Strong global LNG demand is also keeping export terminals in the country running strong.
“We saw a record week for LNG feed gas demand, with the average daily volume surpassing 12 Bcf/d for the first time ever the week ending Dec. 9,” IHS Markit’s Jack Wiexel, senior director of Climate and Sustainability, told NGI on Friday. “That comes on the heels of 11.8 Bcf/d of feed gas demand for the prior two weeks.”
Cheniere Energy Inc. loaded its first cargo from the 5 million metric tons/year (mmty) Train 6 expansion at the Sabine Pass terminal in Louisiana. Feed gas was introduced in September. The company expects commissioning to be completed in 1Q2022.
Elsewhere in the market last week, Qatar Energy (QE) signed a sales and purchase agreement (SPA) with China’s S&T International Natural Gas Trading Co. Ltd. to supply 1 mmty of LNG over a 15 year-period starting late next year. QE announced the deal shortly after it signed an SPA with China’s Guangdong Energy Group Natural Gas Co. Ltd. to supply 1 mmty over a 10-year period beginning in 2024.
PAO Novatek and RWE Supply & Trading GmbH also signed a memorandum of understanding to cooperate on LNG supply and decarbonization.
The MOU provides a framework for RWE to purchase more spot supplies and possibly term supplies from Novatek’s Arctic LNG 2 project. Novatek could also supply ammonia and hydrogen from its planned Obskiy Gas Chemical Complex to RWE for delivery into European markets.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 |