Europe prays for a mild winter as price stabilizing efforts continue [GGP]
Europe prays for a mild winter and friends in far flung places – from the US freeport facility to private Chinese companies that may be able to increase LNG exports to Europe during the heating season. Europe itself takes steps to introduce a price gap, but details remain vague, causing markets to continue to take a wait-and-see attitude.
After a volatile few months, European natural gas prices have been falling through September and October and are currently at their lowest level since June 2022, reaching $40 per million British thermal units (MMBtu) on the Netherlands-based Title Transfer Facility (TTF) yesterday (17 October).
Underground storage levels in Europe are continuing to build alongside policy efforts within the European Union to stabilize end-user prices.
The European Commission (EC) is considering intervening in the market to increase stability and liquidity and ease the upwards pressure on the European gas market.
Until then, with the gas withdrawal season approaching fast, market participants will be hoping to avoid any major supply outages and abnormally cold weather which would hit certain European nations, such as Germany, at the worst possible time. Asia and the US are presently sitting comfortably when it comes to supply and storage levels, though this could change as winter approaches.
Alongside LNG imports, Europe’s major gas supplier Norway is managing to offset the latest drop in Russian pipeline gas to keep supply at healthy levels.
In recent weeks, Norwegian gas flows have returned to 330 million cubic meters per day (MMcmd) following the end of September maintenance.
On 17 October, exit nominations from the Norwegian Continental Shelf (NCS) totaled 336 MMcmd, their highest level since the end of July.
LNG imports have also edged up on the back of strong spot purchases in August and September. Last week (week 41), LNG imports into Europe totaled 2.83 million tonnes (Mt), the highest level since the beginning of May.
Major LNG exporters to Europe include the US, Qatar and Russia which exported 0.96 Mt, 0.47 Mt and 0.45 Mt respectively in week 41.
On the supply side, Nigeria LNG has declared force majeure due to flooding in the Niger delta region.
It is still unclear how long it will last with around 3.8% of global monthly supply potentially impacted, representing an upward risk to prices.
Meanwhile, European gas demand has continued its year-on-year decline following measures put in place by the EC and demand destruction.
For the coming week, milder temperatures are expected across Continental Europe, which is expected to further depress demand for gas.
Falling demand is enabling Europe to build storage levels ahead of the winter withdrawal season.
European storage facilities are now 92% full, well ahead of the EU’s 1 November target, compared to 77% at the same time last year.
UK storage is 100% full, Germany 95% full, with Austria and Hungary at 78%.
This indicates that Austria and Hungary are on track to meet the EU’s target to be 80% full by 1 November.
EC to meet later this week to discuss price cap concept
The EC has not yet reached consensus on whether to cap the price of gas for end users, with some countries pushing back on the idea due to the significant negative impact it could have on the supply-demand balance.
Several countries, including Germany, remain fundamentally opposed to a gas price cap on fears it could exacerbate the energy crisis by failing to address the EU’s fundamental supply issues.
For major gas suppliers such as Norway, which is presently maximizing production to meet Europe’s needs, a price cap could encourage producers to switch back to injecting gas for enhanced oil recovery instead.
The EC will meet in Brussels on 20-21 October to discuss the price cap idea further.
Firstly, the EC is considering measures to expand the list of assets that companies can use as collateral, boosting their ability to hedge transactions.
Secondly, they are considering creating a joint platform for gas purchases, a joint procurement which is key to ensuring that the EU can leverage their market power and avoid competing for a limited pool of volumes.
Third, they are planning a new benchmark, with the intention of providing an alternative to the TTF that they feel may better reflect LNG prices.
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