Nord Stream 1 woes weigh on market as the EU pushes for gas demand destruction
The TTF exceed €195 per megawatt-hour (MWh) equivalent to 57 USD/MMBtu on 26 July, supported by a further cut in Nord Stream 1 gas supplies, and close to the record gas price seen in early March 2022.
March prices were dictated by market sentiment and we are now in a scenario where supply is dropping, meaning prices could beat the all-time high.
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.
With prices testing the €200 per MWh level, we are now beyond the limits of affordability for most industrial users, and we could soon hear recession alarms sounding.
At flow levels of 30 million cubic meters per day (MMcmd), the European Union (EU) achieving storage targets of 80% by 1 November is very challenging and liquefied natural gas (LNG) supply is also likely to see some downside as we approach the US hurricane season.
A political agreement has been reached on coordinated demand reduction for natural gas from the European Commission. While details remain scarce, the EU has said there is a possibility it could become compulsory for gas demand to be cut by 15% from 1 August 2022 until 31 March 2023. The agreement aims to keep a voluntary target for all countries in the bloc, albeit with exemptions, such as countries without links to the EU gas network, those with large volumes of stored gas, and/or countries that export gas.
Even though Kremlin press secretary Dmitry Peskov stated that a complete halt of gas supply to Europe is not planned, the statement is not overly reassuring for European countries and right now the situation appears a never-ending game with Russia calling the shots. The uncertainty and confusion over Russian flows and their disruption is not going away soon and will therefore continue to support and push up gas prices.
Germany and Europe
Germany, which depends on Russian gas for 55% of its supplies, on 22 July announced a new sharp target of 95% full gas storge by 1 November. The German government on the same day handed out a €€15-billion bailout to German gas importer Uniper, which, due to the reduction in Russian flows, was forced to buy gas at higher prices from elsewhere and is estimated will have run up a total loss of €6.2 billion between 14 June and 30 September.
Germany is currently at the second stage of its emergency gas plan and we see a potential risk of stepping into the third stage for the first time in its history. This would mean that gas supply is no longer sufficient to meet demand, so non-market-based measures may need to be taken to ensure supply to critical customers. We may see rationing of gas supplies, with the reduction occurring first in industry, with households and critical institutions receiving available gas. Many German cities are already implementing or considering energy saving measures. Augsburg, for example, lowered the temperature in its public pools and is checking which traffic lights can be turned off and is also considering limiting heating in public buildings. Last month, German Economy Minister Robert Habeck launched a campaign instructing citizens to take shorter showers, increase fridge temperatures by 1 degree Celsius and insulate their homes better.
Apart from Russia, Germany is currently taking gas from Norway, the Netherlands and Belgium. The combined gas flows to Germany from these three countries on 23 July was 255 d. In June this year, average consumption was 102 MMcmd compared to 140 MMcmd in June 2021. This reduction is a result of reduced Russian flows but also high prices.
North Macedonia, which is also heavily reliant on Russian gas, is expected to declare an energy emergency next month, allowing the government to announce additional measures and support.
There is, however, some good news for the European gas market – namely there are already three floating storage and regasification (FSRU) unit projects that have reached a final investment decision (FID) and started construction, including Wilhelmshaven FSRU in Germany, Paldiski LNG in Estonia and Eemshaven FSRU in the Netherlands.
Looking at past projects, it usually takes between six months and three years after FID for small FSRUs to start up – the Paldiski LNG floating terminal has already been confirmed as on schedule to complete work in November.
Apart from policies aimed at reducing European gas demand, the EU is also looking at additional supplies, with the help of Nigeria, Egypt, Israel and Cyprus. Flows from the Transmed pipeline into Europe on 23 July were at 60.42 MMcmd, which is a 40 MMcmd week-on-week reduction, potentially caused by Algerian upstream production constraints.
Norwegian gas flows continue to be at healthy levels and are expected to stay like that for weeks with only light maintenance work planned in August – flows are at 332.5 MMcmd as of 26 July. Given all the uncertainties regarding Russian flows, the EU on 21 July announced its plan of cutting European gas consumption by 15% but was met with much resistance from members including Spain, Portugal Italy, Poland and Hungary.
Turbines drama: Nord Stream 1 problems pile up
The repair of the turbine which caused the reduction of Nord Stream 1 flows on 16 June, was completed by Siemens Canada, but the long-awaited return of the part has not been without issues. The turbine was sent first to Germany from where it failed to be loaded on a ferry to Helsinki in order to reach Nord Stream 1 due to a lack of required documentation. Siemens Energy then handed the missing documents to Gazprom on 24 July, with Gazprom stating the next day that the previously identified risk has not been solved and it awaits further support and clarification from Siemens.
Gazprom on 25 July announced it was decommissioning a second turbine at the Portovaya compression stations for technical reasons, which will reduce the flow to around 33 MMcmd from 27 July onwards. The announcement of a further reduction of flows in the biggest Russian gas link to Europe caused the Dutch TTF to close at $52.4 per million British thermal units (MMBtu) on 25 July – a+$5.8 per MMBtu week-on-week increase.
US – LNG flows on the up
The Henry Hub gas price settled at $8.7 per MMBu on 25 July due to further cuts to Nord Stream 1 supplies to Europe and an upward trend of gas-for-power demand for cooling usage during the blistering summer. It is reported that current gas-for-power demand is projected to average about 40 billion cubic feet per day (Bcfd) in late July and the US could require more domestic gas consumption in the coming weeks if a heatwave persists in Midwestern states.
With our latest view of US LNG exports in the first half of 2022, the country has already become the largest LNG exporter worldwide with a total export volume of around 42 million tonnes, which represents an increase of 17% – or about 6 million tonnes – compared to the same period in 2021. Although a small quantity – 17 MMcfd – of feed gas has been seen to be pumped into Freeport LNG, there is no significant evidence or announcement of the early recovery of partial operation of the Texas facility following a shutdown due to a blast and fire in mid-June.
With the uncertainty of Russian gas supply and resistance from some EU members towards gas consumption cuts, more US LNG exports are expected to flow to Europe, although a downside is expected during the US hurricane season.
The spread between the Asian JKM and TTF last week ranged between $6 and $10 per MMBtu, which was lower than the week before where the difference was about $6 to $13 per MMBtu. The JKM closed at $38.48 per MMBtu on 25 July.
So far this year, European prices have been higher, attracting LNG cargoes to gas-starved Europe. However, Asian buyers have started to increase activity again and the shutdown of Shell’s Prelude FLNG facility off Western Australia is estimated to extend for a longer period, which means a supply loss of around one cargo per week. South Korea has purchased cargoes for delivery this winter and Japanese utilities are looking for supply from September, while Taiwan’s CPC Corp wants to pick up supply for this autumn.
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.