Double Whammy Hits European Gas Markets  | Rigzone


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Last week, a double whammy hit European gas markets, according to Rystad Energy analyst Zongqiang Luo.

“First, it was confirmed that the Freeport LNG facility will be offline for 90 days before gradually ramping up LNG production by the end of the year,” Luo said in a market note sent to Rigzone on Tuesday, adding that the facility has been exporting most of its volumes to LNG thirsty Europe over the last months.

“Secondly, and more seriously, what hit the European gas market even harder last week was that Nord Stream 1 reported that it will reduce exports from Russia to Europe from 167 million cubic meters (mcm) per day to 67 mcm per day,” Luo added.

The news caused the TTF gas prices to surge from EUR 83 ($87.7) per MWh on Monday 13 to EUR 117 ($123.7) on June 17, Luo highlighted. 

“Germany has responded by introducing additional measures announced by the Federal Ministry for Economic Affairs and Climate Action (BMWK) on 19 June, which includes planned reductions in electricity use, introducing a gas auction model to reduce gas usage in the industrial sector in the hope that these moves will strengthen gas storage in Germany,” Luo said.  

“Germany also plans to partially shift to coal fired plants for power generation to meet electricity need, later similar decisions were proposed by Netherland and Australia that more coal should be burned to secure the energy demand in an emergency or if gas supplies from Russia are further restricted,” Luo added.

“For Spain and Portugal, a one year period gas price cap had been put in force since 14 June with a total subsidy of EUR 8.4 billion [$8.8 billion] (EUR 6.3 billion [$6.6 billion] for Spain and EUR 2.1 billion [$2.2 billion] for Portugal) to lower the input costs of power plants and benefit end-users,” Luo continued.  

Looking at the U.S., Luo noted that Henry Hub gas prices slumped below $7 per MMBtu on the last trading day before the three-day holiday break, settling at $6.944 per MMBtu “following a huge drop on 14 June”.   

“With the higher than normal temperature, gas for power generation has reached the level of 5.29 TWh for the U.S. Lower 48 on 15 June and this indicates strong cooling demand in the power sector for the coming days,” Luo said.

“EIA reported a storage level of 2095 billion cubic feet (bcf) on 16 June and a weekly net change of 92 bcf addition in underground storage. But the current storage is still 14 percent lower than the year ago level and 13 percent lower than the five-year average,” Luo added. 

“Therefore, there is little reason to believe that the U.S. gas price would step into a downward trend and the U.S. gas market is expected to remain tight with a blistering summer around the corner and relatively low storage levels,” Luo continued.

Concentrating on Asia, Luo said Chinese gas demand is recovering at a slow pace due to the resurgence in Covid cases in Beijing recently. He added that gas demand in the industrial sector and commercial sector remain flat. 

Confirmed weekly Covid-19 cases in China as a whole have dropped for the last three consecutive weeks, according to the latest data from the World Health Organization (WHO). Prior to the sequence of falling cases, however, China hit a new weekly case record of 576,367 on the week commencing May 23, WHO data shows.

As of June 20, 5.40pm CEST, there have been 4.2 million confirmed cases of Covid in China, with 19,842 deaths, according to WHO figures. As of June 12, a total of 3.4 billion vaccine doses have been administered in the country, WHO shows.

In a separate statement sent to Rigzone last week, Luo highlighted that Chinese gas consumption was recovering at a slow pace, even with the full lifting of Covid lockdown in Shanghai.

In that statement, Luo also outlined that the Nord Stream 1 and Freeport LNG developments were a reminder of the “fragility of the physical infrastructure that underpins the global gas market”.

To contact the author, email [email protected]

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