Gas prices set to recede in 2023 based on current trend [GGP]
After averaging over $40/Mmbtu in 2022, front month TTF prices are now testing $20/Mmbtu levels, last seen in September 2021.
Amidst an unseasonably warm winter, recovering nuclear and above normal wind power in Europe, and lower prices across the energy commodity complex, we are set up for a bearish start to 2023.
The National Gas Company of Trinidad and Tobago Limited (NGC) NGC’s HSSE strategy is reflective and supportive of the organisational vision to become a leader in the global energy business.
However, the market balance is still precarious as Russian pipeline volumes are likely to trend at least 31 Bcm lower on the year, only partially balanced by incremental LNG production in the Atlantic.
Accordingly TTF and Asian LNG prices remain at levels that are multiples of pre-invasion averages.
Russian pipeline flow has been on a declining trend since the start of the year (and is down ~12% on the week), likely due to lower buyer side nominations as a substantially warmer than normal winter and more-than-adequate storage levels have served to limit gas demand.
Lower Russian pipeline flows are unlikely to cause much concern as the European market has long prepared for those volumes to drop to zero.
Norwegian exports to North West Europe continue to hold at around 338.4 Mcmd, almost unchanged from a week ago.
Norwegian pipeline supply accounted for 29% of Europe’s gas imports in 2022 and the country will reprise its role as a pillar of European energy security in 2023.
We expect a slight increase in Norwegian gas exports this year to ~122 BCM compared to 121 BCM in 2022 as Hammerfest LNG increases production after returning from an extended outage last year.
Storage levels continue to hold over 83% (EU27+UK) and the slow pace of withdrawals may extend the bearish sentiment into summer.
Weather patterns are pointing towards colder than normal weather temperatures later in the week, though the upward impact on gas demand will be balanced by above normal wind generation.
Gas prices are also seeing bearish readthrough from the broader energy commodity complex: the API2 coal contract has declined ~7.5% since the start of the year.
TTF prices are now testing the top of the coal to gas switching range which now varies between $14 to $21 /Mmbtu, suggesting we might see some near-term consolidation until the next market-moving event.
Freeport holds the key to improving near-term LNG supply in the Atlantic, and recent announcements suggesting extensive personnel training requirements and pending regulatory restart approval suggests a risk of a delay to late February at least, if not later. Every week of delay takes around ~4 cargoes off the market and will limit downward price movements in an otherwise bearish environment, given Europe’s LNG requirements are higher than last year.
Pacific basin LNG demand has remained tepid through the winter, with most major buyers having stocked up in advance for severe weather. Buyers in India and Thailand briefly returned to the market as Asian prices went below $25/Mmbtu, but this is still too high a price to trigger a mass-return of price sensitive buyers.
Even extended outages at QCLNG and Prelude FLNG, which have taken 6 cargoes off the market this year did not manage to inject any bullishness.
The big unknown in this region is the reopening of China, but we expect energy demand to ramp up only later in the year, with lower cost sources of energy taking priority, which may limit upside to spot LNG demand.
Even so, the prospect of losing cargoes to Asia will incentivize Europe to keep prices elevated.
Mild weather and recovering production have pushed Henry hub prices down to sub -$4 levels, a substantial decline from over $6/Mmtbu observed in mid-December.
The supply picture will be further bolstered by any news of an extended outage on Freeport, as well as continued above-normal temperature forecasts.
As a result we do not expect a reversal of the bearish momentum in the near term.
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