Into the Maelstrom – LNG and European Natural Gas Outlook for the Week Ahead

The European and British natural gas futures continued to lurch lower this week. UK Gas closed at GBp/thm 83.5300 down -13.98% for the week after losing -10.83% and -7.90% the prior weeks, and down -27.66% monthly. Dutch TTF futures closed around €33.19 per megawatt-hour, down -14.01% for the week after losing -11.26% and -6.78% the prior weeks, and down -27.61% monthly. For perspective European prices are still down more than 80% from all-time highs in August last year.

Europe NG storage is at 89.03% of capacity on December 15. That is +15.7% vs 5yr average according to data from Gas Infrastructure Europe and the highest ever for this time of year and well ahead of the European Union’s goal. Germany is at 90.98%, Italy at 87.13%, France at 87.78%, Netherlands at 85.70%, Austria at 92.44%, Spain at 96.42%

One risk we saw a few months ago was the LNG supply pipeline risk in Australia, that appears to be off the table after Chevron LNG workers agreed on a deal to end their strike. The risk was an elongated strike may force Asian buyers elsewhere plus Norwegian outages highlight the market’s vulnerability to price spikes. Norway replaced Russia as the biggest gas supplier to Europe. LNG workers went on strike at Chevron, workers at Woodside Energy facilities reached a deal. The facilities are in the Northwest Shelf, Wheatstone and Gorgon operations in Australia which could disrupt about 10% of global exports.

Dutch TTF Futures

TTF has given up much of the bounce after TTF prices had fallen almost back to the two-year low Eur23.25/MWh on June 1.

Dutch TTE Futures

USD/MMBTU

June 2023 TTE futures were 91.94 on Aug 26, 2022. They are now 9.421. @Ronh999

Record TTF Futures and Options Volume

Commodity exchange operator ICE saw a new record number of TTF gas futures and options traded for a single day on June 15, an ICE spokesperson said June 16. A record 660,504 TTF futures and options contracts were traded June 15, including an all-time daily high for TTF futures of 575,970 contracts.

“TTF had another record volume day yesterday [June 15],” the spokesperson said.

The record trading on ICE comes amid renewed European gas price volatility. The TTF month-ahead price rose by more than 30% intraday on June 15, hitting a peak of almost Eur50/MWh before falling back.

Open interest in TTF futures and options is currently 2.88 million contracts, up by 48% year on year and by 79% since the start of 2023.

ICE announced that a record number of TTF natural gas futures and options traded during May 2023 as the market manages natural gas price risk exposure. A record 5.7 million TTF futures and options traded during May 2023, equivalent to a record 4,158 Terawatt hours.

Liquidity in ICE’s benchmark TTF market has grown strongly in 2023 with open interest up 37% year-over-year (y/y) at 2.6 million contracts, the highest level since January 2022. In addition, ICE is seeing record market participation in its TTF futures and options markets, with hedging out to December 2031.

“ICE TTF is the global benchmark for natural gas. The TTF futures market sends price signals which market participants rely upon to manage their global natural gas price exposure, as well as pricing the flow of natural gas in Europe,” said Gordon Bennett, Managing Director of Utility Markets at ICE. “The success of the TTF derivatives market in sending these critical price signals has helped Europe balance supply and demand for natural gas, as well as identifying and clearing infrastructure bottlenecks that were created due to the changing flows of natural gas caused by the material reduction of gas flowing from Russia.”

TTF to Northeast Asian (ANEA) LNG

TTF front-month price to Argus’ northeast Asian (ANEA) LNG-delivered price. Need to add additional transport costs associated with sending an Atlantic-basin LNG cargo the longer journey to northeast Asia rather than Europe for comparison.

U.S. Natural Gas Quick Look

EU Management of the loss of Russian Gas

  • An increase in LNG imports
  • Sustained gas demand reduction.

The LNG share of total gas imports doubled, from 20 percent in 2018-2019 to 40 percent in the 12 months from August 2022 to July 2023. This was largely driven by imports from the US (LNG imports increased sixfold from 100 TWh to 600 TWh). Russian LNG imports have also increased, but this has nowhere near compensated for the drop in pipeline imports.

Gas consumption by EU country by supply source, including reliance on the three remaining Russian import routes (the Ukraine Transit and Turkstream pipelines, and Russian LNG). Any disruptions to individual trade flows will this year be more readily compensated for by adjustments in intra-EU trade, with gas flowing to areas of need. Source: Bruegel

Norway Gas to Europe

Concerns over Norwegian supply affect price movements in TFF futures. Norway is now Europe’s single largest gas supplier after Russia cut off pipeline supply to most of its EU customers after the invasion of Ukraine.

Nyhamna

  • Nyhamna processes gas from the Ormen Lange and Aasta Hansteen fields, which also remain shut in while the extended maintenance at the processing plant takes place.
  • Shell serves as the technical service provider for the Nyhamna plant, while Gassco is operator for the facility.
  • Nyhamna became operational in 2007 initially to process gas from Ormen Lange, with gas from Aasta Hansteen now also delivered via the Polarled pipeline into the facility.

Norway Maintenance

Maintenance outages at Norwegian Nyhamna gas fields affect Norwegian supply on the market. Nyhamna has 80 million cu m/d of capacity.

After maintenance Norway gas popped up to 200 Mcm/d via @ira_joseph 9/21/23

The heatwave has boosted demand, demand for industrial activities remains subdued. Energy prices continue to be at the fore as Europe prepares by winter as we saw mentioned in both Bank of England and ECB meetings over the past weeks.

Norwegian Nyhamna processing facility

We have the Netherlands closing the Groningen gas field, Europe’s biggest gas site a month earlier than expected. With that record trading on ICE added to the gas price volatility. Other price catalysts are warm weather in much of Europe leading to higher demand for electricity and signs of increasing competition from Asia for liquefied natural gas (LNG) due to a heat wave in parts of Asia.

Shell said that during the planned maintenance work at Nyhamna, gas formation with hydrogen was discovered during cleaning of a water-based cooling system in the process plant. All non-critical work at the facility was stopped and an investigation group established, Shell said.

Gas from the Dvalin field, was also shut in as it also feedrce: into Nyhamna.

European Energy Crisis Watch

Natural gas prices had been held hostage to the restricted flow of Nord Stream from Russia and the hot weather sweeping the USA. The energy crisis pounding the world with unheard of prices was impacting the domestic pricing. In Europe we saw record highs again but since then prices collapsed from newly sourced supply and less severe weather coupled with collapsing industrial demand.

Threats to Europe “include potential outages in gas-exporting Norway, an economic rebound in China, and renewed competition for cargoes from southeast Asia if LNG prices keep falling could deplete Europe’s inventories, said Eugene Kim, a research director at energy-consulting firm Wood Mackenzie. In that scenario, “the onus to refill will be even higher,” he said.

New infrastructure may prove unnecessary as European gas consumption declines, according to the Institute for Energy Economics and Financial Analysis.

Europe’s recent efforts to build out renewables and curb gas consumption are paying off. After a surge in imported LNG in 2022, it has seen imports flatten out this year. – IEEFA

With new LNG infrastructure still coming online, the analysis found, Europe will be able to import 406 billion cubic meters of natural gas by 2030, slightly more than the 400 billion cubic meters of natural gas it is projected to consume in total.

“The decline in gas demand is challenging the narrative that Europe needs more LNG infrastructure to reach its energy security goals,” said analyst Ana Maria Jaller-Makarewicz. “The data is showing that we don’t.”

Catalysts to watch:

  • Hotter or colder weather hitting demand.
  • Russia halting transfer.
  • German rationing
  • French nuclear power
  • Freeport LNG
  • Norway supply
  • Putin constant threats

Norwegian exports to Europe were nominated at just 226mn m³ for today, the lowest for any day since 8 June last year.

Daily Europe Natural Gas Inventory Watch

Europe NG storage is at 89.03% of capacity on December 15. That is +15.7% vs 5yr average according to data from Gas Infrastructure Europe and the highest ever for this time of year and well ahead of the European Union’s goal. Germany is at 90.98%, Italy at 87.13%, France at 87.78%, Netherlands at 85.70%, Austria at 92.44%, Spain at 96.42%

Germany is at 98.89%, Italy at 98.48%, France at 98.89%, Netherlands at 98.78%, Austria at 98.25%, Spain at 100.41%

Europe NG storage is at 89.03% of capacity. Dec 16, 2023

The European Union wanted utilities to refill stockpiles during the summer injection season to 90% of capacity by Nov. 1 easing concerns of shortages ahead of winter without Russian supplies which they achieved with 100% filled.


Global LNG

LNG Ship
In 2023, 4 new liquefied natural gas export projects will likely come online worldwide, with a combined capacity of 1.0 billion cubic feet per day, which will be the lowest since 2013.

Global liquefied natural gas trade volumes set a new record in 2022 – EIA

In 2022, global trade in liquefied natural gas (LNG) set a record high, averaging 51.7 billion cubic feet per day (Bcf/d), a 5% increase compared with 2021, according to data by CEDIGAZ. Liquefaction capacity additions, primarily in the United States, drove growth in global LNG trade. At the same time, increased LNG demand in Europe also contributed to trade growth as LNG continued to displace pipeline natural gas imports from Russia. – EIA

LNG Exports

U.S. LNG exports in 2022 increased by 16% (1.4 Bcf/d) to 10.2 Bcf/d compared with 2021, the largest increase of all LNG-exporting countries. In the first half of 2022, after the new Calcasieu Pass LNG export facility was commissioned, the United States became the world’s top LNG exporter for the first time. However, because the Freeport LNG export terminal shut down, U.S. LNG exports declined in the second half of the year. In 2022, Qatar and Australia remained the top two global LNG exporters; Qatar’s exports averaged 10.5 Bcf/d, and Australia’s exports averaged 10.4 Bcf/d.

LNG exports increased by a combined 1.3 Bcf/d from Malaysia, Norway (after Hammerfest LNG returned to service in May), Trinidad and Tobago, Russia, Oman, and Equatorial Guinea. LNG exports from Algeria and Nigeria decreased by a combined 0.5 Bcf/d as both countries continued to experience issues with domestic natural gas production, which is used as a feedstock at LNG export facilities. – EIA

LNG Imports

In 2022 among LNG-importing regions, Europe (including Türkiye) had the largest increase in LNG imports globally, increasing by 65% (6.5 Bcf/d) compared with 2021. LNG imports declined by 9% (3.2 Bcf/d) in Asia and by 34% (0.8 Bcf/d) in Latin America compared with 2021.

Japan was the top LNG importer for 50 years, until China surpassed Japan in 2021. The following year, in 2022, Japan resumed its position as top LNG importer. The decline in China was due, in part, to its zero-COVID policies, increased imports by pipeline from Russia, and higher use of coal. Other Asian countries, particularly those that rely more on global LNG spot markets, reduced spot purchases because of record-high LNG prices last year. LNG imports into India, Pakistan, and Bangladesh declined by a combined 18% (0.9 Bcf/d) in 2022 compared with 2021.

mong LNG-importing regions, Europe (including Türkiye) had the largest increase in LNG imports globally, increasing by 65% (6.5 Bcf/d) compared with 2021. LNG imports declined by 9% (3.2 Bcf/d) in Asia and by 34% (0.8 Bcf/d) in Latin America compared with 2021.

In Latin America, Brazil had the largest decrease in LNG imports—70% (0.6 Bcf/d)—mainly because the higher availability of electricity from hydropower generation reduced demand for natural gas-fired electricity generation in 2022 compared with 2021. – EIA

Europe rarely receives LNG from Australia; the reaction gives an indication of the nervousness in the supply chain following last year’s Russian invasion of Ukraine. Since then, Norway has replaced Russia as Europe’s biggest source of the heating and power plant fuel. Europe NG storage is at 88.3% of capacity. That is +20.9% vs 5yr average according to data from Gas Infrastructure Europe. A prolonged strike would see Asian buyers looking elsewhere for LNG supply competing with Europe for supply.

Surveys from Rystad Energy show Europe is likely to reach its target of 90% full gas storage by the start of November, easing concerns of shortages ahead of winter without Russian supplies.

Australian LNG

Australian Strikes

Though the strike is over it is worth looking back at how the event caused futures prices to surge. The strike caused a rebound in European and British natural gas prices with their biggest weekly gain since June. UK and European prices that Wednesday ripped higher after possible LNG workers strikes at Chevron and Woodside Energy facilities in the Northwest Shelf, Wheatstone and Gorgon operations in Australia which could disrupt about 10% of global exports. We also had slower Norway Maintenace. TTF futures briefly topped €40 a megawatt-hour that Wednesday for the first time since June. For perspective they are still down more than 80% from all-time highs in August last year.

Should the Chevron and Woodside strikes disrupt exports from the Australian plants for two months, the time last year’s interruption at Shell Plc’s Prelude floating LNG production hub in Australia could send prices to €50. This is the view of Goldman Sachs Group Inc. analyst Samantha Dart. with the prices elevated for the rest of the northern hemisphere summer and as high as €97 in the winter.

The Offshore Alliance led the strike and included members of two key labor unions. In a statement they said the strike is over benchmark pay and conditions, and steps to improve job security including limits on the outsourcing of roles to labor hire contractors. Action by staff could involve refusing to load tankers or vessels, or complete work stoppages.

Woodsides Pluto LNG Port

Australia’s LNG sector is forecast to generate export earnings of A$68 billion ($45 billion) in the year to June 30, according to the Australian government.

China LNG Imports

Chinese imports are up y/y in 2023 and more so in Q2 and Q3. However, imports remain below all-time levels. Lower prices have also helped spur demand via @ira_joseph

European LNG Imports

  • LNG plus Norwegian, Algerian, Azerbaijani pipeline imports compensate for Russian supply shortfall
  • Europe LNG processing operating at full capacity
  • Record shipments of liquefied natural gas (LNG) to Europe so far in 2022/23
  • LNG imports into EU-27 countries and the UK increased substantially in 2022—by 73% (6.3 Bcf/d) compared with 2021—replacing imports by pipeline from Russia.
  • Five countries—France, the UK, Spain, the Netherlands, and Belgium—increased LNG imports by a combined 5.4 Bcf/d, accounting for 85% of the total increase.

Sustained brisk LNG send out has bolstered available supply for injections. Aggregate European send out, including the UK was 4.89 TWh/d on 1-21 May, up from a three-year average of 3.61 TWh/d.

France’s 5Bcm/year Le Havre LNG terminal is set to start operations in October, TotalEnergies told ICIS The Cape Ann FSRU now on its way to LeHavre signaling a 16 September arrival via @andry92dh

US LNG Exports

US natural gas exports in billion cubic feet per day – EIA @staunovo
Image

Natural Gas Feed to US Facilities

Per today’s early-cycle pipeline data (Dec 16, 2023) LNG feedgas demand will inch upwards to 15.0 BCF/d, up +2.1 BCF/d vs 2022 & right at last weekend’s 15.05 BCF/d all-time high. It also represents an impressive 97.4% of demonstrated capacity. via @CelsiusEnergyFM

Sabine Pass, Cameron, Elba Island, Cove Point, Freeport & Corpus Christi combined.

LNG feed gas averaged 12.8 billion cubic feet per day in the first six months of 2023, following the Freeport LNG terminal’s return to service.
Daily NG inflow to Freeport LNG.
EIA: Natural gas demand from the seven operating U.S. LNG export projects and three more that have reached FID and under construction

Biden Promises

On Friday March 25, 2022, from a EU/NATO meeting in Poland, the Biden administration and European Union (EU) leaders announced a new effort to ensure Western supplies of natural gas to the continent through 2022 and beyond. The United States and the EU now have a joint goal to send an additional 15 billion cubic meters of LNG to EU countries in 2022, about 1.5 Bcf/d, with “expected increases going forward,” according to the White House.

U.S. exporters have little room to ramp up more in the near term, and Western governments do not have the power to order private companies in the LNG market to direct shipments to Europe.

Image

European Natural Gas Demand

EU’s largest gas consumption:

  • Households 37% of total demand,
  • Electricity and heat generation around 30%
  • Industrial consumption around 30%
  • Gas demand was 12% lower in 2022 than the 2019-2021 average, driven by falling industrial and household gas demand.
  • In 2023, the greater availability of alternative power generation facilitated significant gas demand reduction also in the power sector.
  • In the second quarter of 2023, gas demand was 19% below the 2019-21 average, with gas demand for power generation 17% down.

A relatively warm winter helped reduce household gas demand. It is very difficult to isolate and attribute demand reductions to temperature because of the range of unusual circumstances occurring at the same time. However, using linear regression analysis, we link 35 percent of the EU reduction in gas demand during winter 2022-23 to warmer weather. There is significant variation by country, with about 20 percent of the reduction in Germany driven by weather, and about 60 percent in France. Global warming of course increases the likelihood that each winter is now warmer than the previous ten-year average.

Ben McWilliams Giovanni Sgaravatti Simone Tagliapietra Georg Zachmann Oct 10, 2023

Demand switching and destruction across Europe, overall gas demand down more than 19% in May on 5-yr avg @ICISOfficial data show.

EU implements voluntary 15% cut to consumption.

Products which are most exposed to energy and gas prices in Europe as a feedstock or utility via ICIS Margin Analytics

In April, savings were 10% below ave. @ICISOfficial data show.

  • EU only -18%
  • DE -21%
  • GB -24%
  • IT -11%
  • NL -29%
  • FR -23%
  • ES -5%

Not temp adjusted.

With Germany the epicenter of Russian gas bans the real threat of demand destruction is plain for all to see. Germany’s trade balance came in at minus €1bn in May 2022, which is the first negative print since 1991 due to its energy problems & weakness in manufacturing.

Energy Price Matrice Performance

Weekly Energy Markets Performance

The volatility of natural gas prices is legendary in the future’s world. Henry Hub was the worst performing future in the first quarter of 2023. In the second quarter of 2023 it was the best performing future.

  • Natural-gas prices on the New York Mercantile Exchange lost 53% in the first three months of the year and fell to their lowest finish in about two-and-a-half years earlier in March.
  • Natural-gas prices on the New York Mercantile Exchange rose 31.89% in the second three months of the year.
  • For the first six months of the year it is still the worse performing future for 2023, down 37.99%.

Moving forward weather, ETF speculation and the strength of LNG demand will determine U.S. natural-gas prices. Remember natural gas prices are majority affected by domestic actions, for the US the variance is exports, that is Mexican pipelines, Canadian imports and LNG exports.

Russian Gas

  • All that is left of Russian gas flows to Europe is one operating point in Ukraine via Sudzha.
  • TurkStream the only other pipeline still in operation supplies gas to Russia ‘friendly’ nations
  • Nord Stream I and II pipelines damaged by explosions, zero flows to Europe
  • LNG plus Norwegian, Algerian, Azerbaijani pipeline imports compensate for Russian supply shortfall

“The strong rise in capacity will ease prices and gas supply concerns, but also risks creating a supply glut, given that global gas demand growth has slowed considerably since gas markets’ “golden age” of expansion during the 2010s. As a result, Russia will have very limited opportunity to expand its customer base. Its share of internationally traded gas, which stood at 30% in 2021, is set to drop to half of that by 2030. ” World Energy Outlook (WEO) Oct 2023

The amount of Russian LNG flowing to Europe has increased by 35% to 68 Mcm/d since before the invasion. More Russian LNG is flowing to Spain, Belgium, France, & Turkey; less to the UK and Netherlands. Russia’s share of European LNG buying is largely unchanged. via @ira_joseph 8/17/23

Europe has historically depended for close to 40% of its annual gas consumption on Russian supplies, imported via four routes – Ukraine, Belarus-Poland as well as the Nord Stream 1 and TurkStream corridors linking Russia to Germany and Turkey via the Baltic and Black Sea, respectively.

Overall Russian pipeline supplies were limited throughout 2021 and further reduced in 2022. By the end of last year Russian pipeline supplies fell to less than 10% of Europe’s total gas imports compared to 40% in the previous year.

Russian volumes shipped through Ukraine to Europe are now at third of what they should be as part of a five-year transit agreement.

Russia has banned exports of gas to several EU countries, and the Nord Stream I and II pipelines have been damaged. In 2022 flows via Yamal and Nord Stream 1 stopped completely.

European petrochemicals players faced even higher gas prices as a result, though these have since collapsed to pre-war levels. Fertilizer companies – where gas can account for 80% of costs – have been forced to curtail production. Chemicals were affected, especially those with high exposure to gas prices through utilities or feedstocks. Via ICIS

Europe’s dependence on Russia’s gas in one map via @michaeltanchum

Russia stopped publishing total gas production numbers in August. At that point, YTD output was down 171 Mcm/d. However, in Q3 it was down a whopping 380 Mcm/d. By comparison, Gazprom alone is down 214 Mcm/d YTD, which hints at smaller producers having more trouble @ira_joseph


  ++Charts via KnovaWave @knovawave RonH @RonH999 – Visit Ron for daily updates 

Sources: TradersCommunity, EIA, RonH Energy, KnovaWave, Argus, ICIS, Bloomberg, Bruegel

From The TradersCommunity US Research Desk