• Natural Gas News

    Sudden Tightness Squeezes EU Gas Market


After a summer that saw some record low prices, the autumn is shaping up to be quite different.

by: William Powell

Posted in:

Natural Gas & LNG News, Europe, Premium, Corporate, Exploration & Production, Political, Regulation, Market News, Infrastructure, Pipelines

Sudden Tightness Squeezes EU Gas Market

Gas prices for northwest Europe face short to medium term pressure from four directions: the Middle East, the Netherlands, Russia and Norway. First, oil indexed long-term gas contract prices will probably rise, since although there is at least a three and sometimes or six to nine month lag in the relationship, the market from now on might start to factor in more price risk, owing to the vulnerability of the world's biggest producer of crude.

Despite the assurances from the OECD energy watchdog, the International Energy Agency, that there is no shortage of commercial stocks, prices for dated Brent have risen by a fifth on the first day of trading after the attacks on the Saudi facilities. And relations between Iran and the US have deteriorated sharply, as the US has blamed Iran which denies any involvement. Iran has said it is ready for war.

This in turn could draw up the spot price for LNG cargoes to northeast Asia and hence influence the Dutch title transfer facility, the major price reference for northwest Europe, depending on how long it takes to repair the facilities in Saudi Arabia. And some European gas is also sold on oil-price-indexed contracts.

Second, and nearer to home, the Dutch government's decision to limit Groningen output to 11.8bn m³ this gas year (from October 1) represents a bigger than expected cut. Before the Dutch council of state intervened this summer, urging the economy minister to look for further reductions, the expectation was that it would produce 12.8bn m³, itself a drop from this year's 15.9bn m³. Groningen gas, being rich in nitrogen, is about 90% of the calorific value of Norwegian or Russian gas. 

Third, the European court ruling against Gazprom restores the limit on the capacity that the Russian gas pipeline monopoly can use in the 36bn m³/yr Opal line, cutting another 13bn m³ from Europe's expected supply, or fines might be imposed.

And fourth, Norwegian maintenance outages this year are concentrated in September and early October, according to analysts at Timera: last year the maintenance was spread more evenly over the summer. This year, by contrast, its two biggest gas fields, Troll and Ormen Lange, will be offline around the same time.

Timera said the outages at Troll and Ormen Lange will have a material impact on northwest European gas supply over the next six weeks. The Nyhamna processing plant, which takes Ormen Lange gas, is shut September 8-24, taking about 65mn m³/d off the market. Terminal maintenance will also have additional UK delivery impacts totalling some 85mn m³/d in September. "These outages along with major Cheniere LNG terminal outages will likely help some NBP/TTF price recovery into winter," it said.

On the positive side, European gas storage stocks are at very high levels; but the withdrawal season is still over a month away, and traders are aware of the uncertainty surrounding gas transit through Ukraine from January 1, for which so far no contract has been agreed. A meeting is due later this week hosted by the European Commission, which the Russian and Ukrainian energy ministers are also due to attend. The aim is to reach an agreement on terms for next year.