Natural Gas Prices in Europe Hit Three-Month Low – LNG Recap
Natural gas prices in Europe fell Monday to their lowest level since Russia invaded Ukraine in February, as weak demand and the steady arrival of liquefied natural gas (LNG) shipments combine to weigh on references.
Stockpiles are filling up fast as the continent rushes to move Russian supplies. Inventories were at about 43% capacity on Monday, compared to the five-year average of 46% for this time of year.
“LNG vessels continue to head to North West Europe for regasification with gas export pipelines from the region now at full capacity, as a result LNG spot prices in Asia are trading higher than in Europe,” said Lu Ming Pang, analyst at Rystad Energy.
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So much LNG arrives in Europe that sellers offer it at a reduced price to secure available delivery slots. Spark Commodities last week assessed LNG prices delivered in Northwestern Europe at a discount of $7.520/MMBtu at the Dutch Title Transfer Facility (TTF), while prices in Southwestern Europe Europe were at a discount of $7,315 from TTF.
The TTF front-mount closed near $26 on Monday, building on last week’s losses despite Gazprom PJSC decision to cut off natural gas supplies to Finland for failing to comply with a payment process allowing Russia to receive rubles for its gas exports to Europe.
Pipeline flows from Russia and Norway were mostly flat on Monday. Slight drops from Ukraine to Slovakia and an unplanned outage at Troll Field in Norway halted deliveries. Russian flows on Nord Stream 1 to Germany have been stable.
Mild weather and higher wind generation on the mainland have also reduced demand for natural gas. Electricity supplies remain tight, however, as twelve nuclear reactors remain out of service for maintenance in France, a major electricity exporter for Europe.
A spike in coal prices, as well as the potential impact of the war in Ukraine on the volumes of Russian gas transiting through the country, limited further declines in gas prices in Europe.
A reported outage to all three Qatargas 1 trains for planned maintenance until the end of the month could limit supplies available at short notice, while warmer than normal weather expected to kick off summer in parts of the southern Europe could also keep prices high.
Rebound in Asian demand
So far, Pang said waiting times to unload shipments in Europe have jumped amid congestion at delivery terminals. This has tied up ships for longer distances and pushed up LNG carrier rates in the Atlantic and Pacific basins.
Higher storage inventories and Covid-19 lockdowns in Asia have reduced demand there this year, but interest in the spot market has increased. Trading firm Trident LNG said on Friday sentiment had improved in the region as Japanese and Korean buyers sought spot shipments.
Lockdowns in Shanghai, which have lasted for nearly two months, are also expected to ease from June 1.
Strengthening Asian demand reduced LNG deliveries to Europe last week, when 24 of the 30 ships originally scheduled unloaded, according to Schneider Electric.
Strong international demand pushed feedstock deliveries to U.S. terminals to an eight-week high of 13.4 billion cubic feet per day, according to EBW Analytics Group. The call for US LNG exports was partially offset by higher production over the weekend, which hit a four-week high of 1.6-1.9 Bcf/d from lows for the week latest, said EBW analyst Eli Rubin.
Trends in cooler weather patterns over the weekend reduced expectations for early June heat in the US and saw natural gas futures slip in early trading on Monday. But the Henry Hub prompt came back to hit an intraday high of over $8.80/MMBtu and finished at $8.744.
Bespoke Weather Services continues to expect lean storage builds in the coming weeks given market fundamentals.
“In fact, we’re currently showing the next four digits below the five-year average construction, which is unsustainable without ultimately driving prices up until we can gauge some of the demand,” the company said. society.
Crude prices also rose on Monday, surging above $114/barrel at one point on supply risks and strong demand.
Germany and Qatar unite
Separately, last week, Qatar and Germany signed a joint declaration of intent to work closely together on energy. The countries are negotiating a long-term supply agreement for LNG, but Qatar will not be able to provide new supplies until the Golden Pass terminal comes online in Texas in 2024. ExxonMobil and Qatar Energy have joined the project, which is under construction.
Freeport LNG Development LP also asked federal regulators for another expansion to build a fourth liquefaction train at its Texas plant. The company now wants until August 2028 to complete the 5 million metric ton/year expansion, citing delays caused by the pandemic. The company previously secured an extension to build the train by May 2026.
And on Monday, President Biden announced the formation of a new economic bloc with a dozen Indo-Pacific nations including Australia, Japan and South Korea. The alliance aims to counter China’s influence in the region.
The economic partnership comes after the Trump administration pulled out of the Trans-Pacific Partnership. The bloc would also focus on decarbonization and energy infrastructure aimed at tackling climate change and accelerating the energy transition.