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    Europe’s winter now in sight, gas markets are snug but by no means cozy [GGP]

Summary

Winter is approaching in the northern hemisphere and storage levels are rising across Europe. But supply tightness remains and a harsh winter could push prices higher.

by: Rystad Energy

Posted in:

Complimentary, Natural Gas & LNG News, Europe, Global Gas Perspectives, Market News, News By Country, EU

Europe’s winter now in sight, gas markets are snug but by no means cozy [GGP]

With Europe’s winter season now in sight, gas markets are snug but by no means cozy. 

Global gas supply has tightened further following damage to the Nord Stream 1 and 2 pipelines last week. 

Europe’s gas market participants are now looking to storage injections to safeguard inventories through winter. 

However, while European storage levels are shaping up nicely, an early or extended winter could yet send gas stocks sledding downward, pushing prices higher.

Europe
Weekly LNG imports into Europe are now at their highest levels since early May, with imports averaging 2.6 million tonnes (Mt) in September’s second half and up 26% compared to previous week’s average of 2 Mt. 

Meanwhile, regasification plant utilization rates continue to run at maximum capacity in Europe and even exceeding nameplate capacity in recent weeks.

Much uncertainty surrounds the nature of the Nord Stream pipeline leaks, with deliberate sabotage not ruled out. 

The latest reports suggest gas pressure on Nord Stream 1 stabilized on 3 October after dropping on 26 September. 

Regardless, the damage is expected to take months to repair. 

Prices on the Netherlands-based Title Transfer Facility (TTF) jumped to $62 per million British thermal units (MMBtu) following the news but have since settled at around $47 per MMBtu, supported by improvements in storage inventories.

EU gas security
European storage is just over 89% full, well above the European Union’s requirement of 80% by November. 
Storage facilities in France, Germany, Spain, Italy and the Netherlands are all more than 90% replete, with France close to 100%. 
German storage continues to see incremental gains and is currently 92% full, close to the country’s goal of 95% by November. 
Storage facilities in Austria and Hungary are closer to 74%. With another month of injections, EU countries should meet or exceed their storage targets ahead of the deadline.

Norwegian gas flows
Gas flows from Norwegian fields are set to increase to nearly 330 million cubic meters per day (MMcmd) this month following the end of scheduled plant maintenance through September. 

Current flows remain stable, hovering at around 280 MMcmd and keeping upward pressure on prices for the time being.

EU agreement approved
Some negative price signals have resulted from EU energy ministers agreeing on a set of emergency measures to help Europe reduce energy prices. 
While the agreement outlines a plan to reduce electricity consumption through a revenue cap on electricity producers and a temporary solidarity levy on the fossil fuel sector, a gas and LNG cap has not been announced. 

A gas and LNG price cap is not off the table, but an agreement may be challenging. 

The EU Energy Council would need to find a way to prevent countries from competing against each other to raise gas and LNG prices, but also to ensure that if prices do exceed the cap, countries can find a way to pay for the gas.

US
In the US, Henry Hub prices have fallen to around $6.50 per MMBtu on the back of improved supply and weakened demand. 

US stocks have increased 103 billion cubic feet (Bcf) week-on-week and are now 9% below the five-year average. 

Cooler temperatures have led to reduced gas-for-power consumption, while the residential and commercial sectors have both begun increasing use towards seasonal peaks expected this winter. 

Hurricane Ian has devasted the US southeast region and forced evacuations. 

However, no major pipelines or gas infrastructure (including LNG export facilities) have been damaged, with most of the impact leading to reduced demand for power in Florida and surrounding states. 

US dry gas production reached record levels of 101 billion cubic feet per day (Bcfd) in late September, driven by the Permian Basin and Haynesville supply growth.

Freeport LNG’s full return to operations has again been delayed, but the operator still expects the facility partially return to service in November. 

Thereafter, it will gradually ramp up output, rather than flipping a switch. 

US feedgas volumes are expected to fall further in the coming weeks as Freeport LNG’s outage continues and the Cove Point LNG facility goes offline for scheduled maintenance in the first three weeks of October. 

In general, however, total US feedgas volumes have been steadily rebounding since Freeport LNG’s explosion in June when levels were closer to 12.5 Bcfd. 

As of the start of October, they now sit just 1 Bcfd lower at 11.4 Bcfd. 

Calcasieu Pass feedgas volumes have increased from 1,356 MMcfd before Freeport LNG went offline in June to 1,747 MMcfd at the end of last week. 
Along with some ramp-up at Sabine Pass LNG and Cameron LNG facilities, this has helped offset 2 Bcfd in losses from Freeport LNG.

Asia
Traded gas prices on the Japan-Korea Marker (JKM) have fallen below $40 per MMBtu but are still tracking Europe’s TTF price. 

With storage inventories in Asia at high levels and expected to last through December, most market focus has now shifted to January LNG imports.
Japan and South Korea may already have high storage levels as we have seen buyers attempting to offload LNG cargoes for November and December. 

Forecast storage levels in Japan have prompted Kansai Electric to begin looking to sell December cargoes. 

Demand for gas in Asia is still relatively low compared to European markets, at least for the coming two months. 

South Asian buyers GAIL (India) and PLL (Pakistan) have taken advantage of lower prices in the spot market, securing some cargoes in recent weeks but prices may still be too high to see any meaningful purchase activity this week.

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