• Natural Gas News

    Europe looks to US and Qatar for long term LNG imports [GGP]

Summary

Russian threats to cut gas supplies may have backfired as Germany signs two long term deals to import LNG from Qatar.

by: Rystad Energy

Posted in:

Complimentary, NGW News Alert, Natural Gas & LNG News, Europe, Liquefied Natural Gas (LNG), Global Gas Perspectives, Corporate, Contracts and tenders, Market News

Europe looks to US and Qatar for long term LNG imports [GGP]

European temperatures have dived in the last two weeks of November, kick-starting the gas storage withdrawal season and boosting pricing momentum in Europe’s gas market.

Russia’s short-lived threat to halt gas transits to Europe via Ukraine’s Sudzha entry point on 28 November and ongoing discussions in the EU over a proposed cap on gas prices add to the debate.

In a sign that Europe is beginning to tire of Russia’s intermittent supply and is increasingly seeking long term alternatives, Germany today signed two agreements to import LNG from Qatar’s North Field for at least 15 years from 2026.

In the US, the gas withdrawal season has also begun, with 80 billion cubic feet (Bcf) taken from storage last week as heavy rains blanketed most of the country following the Thanksgiving holiday.

In Asia, colder-than-normal temperatures are forecast for Japan and South Korea in early December, although Asia’s ample gas inventories should keep spot prices down.

In China, another wave of Covid-19-related lockdowns could also put downward pressure on Asian gas demand and prices.

 

Europe

Europe’s gas market continues to adapt to the possibility of a winter of ever lower Russian gas volumes, despite Gazprom withdrawing its threat to cut gas flows via Ukraine’s Sudzha entry point.

Regardless, the impact of the short-lived threat on supplies transiting Ukraine was relatively minor with the market already pricing in the risk of the further decline volume from Russian supplies or even drop to zero as mentioned in our last outlook.

In continental Europe, the front-month Title Transfer Facility (TTF) gas price closed at around $39 per million British thermal units (MMBtu) on 23 November then declined slightly to $38/MMBtu on 25 November after EU member states agreed to the European Commission’s proposal to cap gas prices at €275 ($285) per megawatt per hour (MWh) for one year.

However, formal approval of the gas cap is not expected until a meeting on 13 December.

The gas price cap would be triggered when both the front-month TTF settlement price exceeds €275/MWh for two weeks and TTF prices are €58 higher than an LNG reference price for 10 consecutive trading days within the two weeks.

The cap can be suspended immediately at any time.

Poland, Greece, Italy and Belgium have been vocal supporters of the cap, with Germany reluctant to apply it due to concerns that a ceiling price on gas could reduce supplier incentives to provide enough gas onwards into Europe, especially when Nord Stream 1’s supply seems highly unlikely to resume in the near term.

There are also wider concerns about the ability of some EU member countries to provide financial aid to help utilities buy more gas or to compensate citizens facing high household bills.

Not every country has the flexibility to continuously offer financial support over the long term. According to latest government debt statistics for 2Q22 released by Eurostat in late October, the government debt-to-gross domestic product (GDP) ratio in the euro area is over 94%, with seven countries exceeding 94%.

In this case, the region would be looking at structural and compulsory demand cuts unless the European Commission steps in and provides subsidies as it has in Iberia where €8.4 billion in subsidies was provided to enable the region to cap gas prices at €40/MWh for gas fired in power sector .

When it comes to European gas production, on 22 November Norway’s Petroleum and Energy Ministry noted Equinor’s plans to develop the Irpa gas discovery in the northern areas of the Norwegian Sea.

This will bring on another 20 billion cubic meters (Bcm) of gas production from 4Q 2026, which may enable more pipeline gas exports to Europe in the medium term.

  

Asia and the US

In Asia, Asian buyers (ex-mainland China) are closely monitoring the market after meteorological offices in Japan and South Korea forecast a cold-than-normal start to December.

However, with ample gas inventories, Asian countries are largely well-placed to meet upcoming gas demand, especially since Chinese importers are not competing in the spot market due to a new wave of Covid-19-related lockdowns which are limiting industrial activity.

In the US, the Henry Hub front-month gas spot price climbed over $7/MMBtu on 23 November, the last day of trading before the Thanksgiving holiday which was followed by storms and heavy rain across several US states, especially in the south, which dented industrial and commercial gas demand.

Despite this, the US lower-48 have seen the first storage withdrawals of the season at 80 Bcf, suggesting gas-for-power demand remains strong with daily consumption estimated at around 30 Bcf in the last week of November. In terms of LNG exports, Freeport LNG will not return to the market by mid-November with full operation expected to commence in March 2023.

Meanwhile, Calcasieu Pass LNG has recovered from a partial outage with feedgas supplies rebounded to 1,775 million cubic feet per day (MMcfd), while the partial outage of Corpus Christi LNG remains unsolved with feedgas still flowing at around 1,470 MMcfd on 28 November.

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.