Record LNG Imports Weighing on Natural Gas Prices in Europe – LNG Summary
European natural gas prices fell again on Monday as storage inventories rose and governments continued to discuss measures to better control soaring energy costs.
The October Securities Transfer Facility (TTF) contract fell about 3% from Friday’s close to close Monday below $54/MMBtu. The TTF is down over 40% from the August highs of $100.
The contract jumped above $60 in the middle of last week after the European Commission published proposals that would target energy consumption and excess revenue from the energy sector to rein in energy costs instead of capping natural gas prices. The TTF has since fallen as EU member states must approve proposals and the market continues to weigh possible outcomes.
“The situation in European energy markets has started to improve over the past three weeks as political action has taken shape and growing evidence of a price-led demand response is emerging. emerged,” British consultancy Timera Energy said in a Monday note. “The real risk for Europe now is bad weather.”
Governments are also preparing to provide energy companies with more cash to meet rising commodity costs, while others are moving closer to nationalizing parts of the energy sector.
Germany takes control of the Russian firm Rosneft PJSC German oil refinery last week, while the German government is also said to be in talks to nationalize some of the country’s biggest natural gas importers, including VNG S.A. and Uniper SE.
Record LNG deliveries
Record amounts of LNG arriving on the continent are also weighing on prices. Timera said European imports of liquefied natural gas jumped 5.8 million tonnes a year in August. Steady arrivals left European storage stocks at 85.6% capacity and above the five-year average.
Rystad Energy analyst Fabian Rønningen said lower gas prices, combined with higher wind output, pushed power prices down for the third week in a row on Friday.
“Dependency on the gas market remains high, and although prices have come down a lot in recent weeks, they remain at historically high levels,” he said of European power markets.
Natural gas prices also remain well above historical averages for this time of year. Russia has reduced flows to Europe to around 1 Bcf/d, and countries on the continent are preparing for the possibility of blackouts this winter.
“The European gas market remains on the razor’s edge as winter approaches,” added Timera. “…The big risk for Europe remains a cold winter in Northeast Asia, which would lead to fierce competition for cargo.”
The drop in European prices also weighed on the cost of Asian LNG. However, Japan-Korea spot prices remain above $40/MMBtu. LNG shipments to Japan this week were reportedly delayed due to Typhoon Nanmadol. Shipments to China were also delayed by the storm.
Nanmadol made landfall in Kyushu, Japan’s southernmost island, on Sunday, bringing heavy rain and strong winds. The typhoon is expected to move towards central Japan and maintain strength in the coming days.
Japan’s Commerce Ministry also said last week that it would support more LNG purchases by holding an auction to provide capital for a utility to purchase about four cargoes.
Meanwhile, in the United States, Henry Hub prices fell for a fourth consecutive week last week. The sale continued on Monday.
Natural gas production has increased this month and mild weather is forecast for October, which could reduce early season heating demand.
U.S. natural gas production topped 100 Bcf/d for the first time this month, according to RBN Energy LLC. However, the market remains tense given the strength of the electricity sector and the demand for LNG which limits injections of storage.
This kept the market volatile. Henry Hub topped $9/MMBtu last week before a railroad strike was averted and forecasts eased.
Last week’s volatility demonstrates that “natural gas remains very sensitive to any emerging bullish catalysts triggering a rapid spike” in prices, said Eli Rubin, senior analyst at EBW Analytics Group.
NatGasWeather said on Monday that this week’s trading in the United States “will be of great interest to see if the bears capitalize on the new momentum found to push prices below $7.50 or if the bulls find another reason to dwell.” ‘buy the drop’.