Good news for global gas supplies helps steady prices
Global gas market sentiment is skewed bearish this week due to milder weather in Europe and more LNG supplies coming over the horizon.
However, the downside risk is balanced by continuing concerns over Russian supplies to Europe and the potential for winter to follow the market into March, especially in Northeast Asia.
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In Europe, near-term signals suggest a bearish push on the TTF as LNG from the US and West Africa continue to inundate the continent, given the stubbornly tight TTF-Asian LNG spread.
Europe has imported around 3 million tonnes in February to date, a rate which suggests more than 7.5 million tonnes of imports comfortably through the month.
Storage levels are abysmally low compared to the five-year average, trending at 36% of notional capacity, but may get a boost and close out the winter near the bottom of the average range.
Warmer than usual temperatures are expected through the coming weeks, while improved wind power availability will add to the cap on gas demand.
Nevertheless, the TTF continues to experience sporadic instances of volatility, most recently driven by the recent downward revision to EDF’s nuclear output projections in France, which is likely to have jolted some nerves as this signals a bullish call on gas-fired power as back up.
The near-term geopolitical outlook for gas markets in Eastern Europe is mixed as diplomatic efforts are ongoing to de-escalate tensions at the Ukraine border.
A move in either direction is likely to replicate with corresponding volatility in gas prices.
It is clear that there will be no easy solution to a disruption in Russian supplies, even if the likelihood of an all-out halt in gas flows is low.
Recent frigid weather spells in Texas and New Mexico have caused some production fluctuations in the US, coinciding with increased heating demand.
Following several weeks of extraordinary volatility, the Henry Hub is trading at sub $4.5/Mmbtu levels, with the weather expected to turn mild in the coming days.
Storage levels have fallen below the five-year average, while consumption, including exports, is expected to remain robust throughout the remainder of the withdrawal season.
At the end of March, storage levels are expected to be around 1.6 TCF, slightly below the five-year average.
Across the Meridian, Winter has followed Asian buyers into February, with below-normal temperatures likely across much of Northeast Asia in the coming following weeks.
There is considerable discomfort in the falling inventory levels that have sent some buyers back to the spot market to procure alternative supplies.
Demand in China may pick up after the Lunar New Year and the return of more buyers into the spot market, suggesting a near-term price support level.
After several weeks of reported outages, positive news on LNG supply was much needed.
Nigerian exports have recovered after hitting a low of 1.1 Mt in October 2021, rising consistently through the rest of the year to 1.5 Mt in January 2022.
Gorgon Train 2 restarted operations earlier this week, with the facility returning all three trains to service with no planned maintenance for the rest of the year.
Sabine Pass Train 6 achieved substantial completion on February 4, marking the end of its commissioning phase and commencement of full commercial operations.
Calcasieu Pass is set to load its commissioning cargo in the coming days, although it appears the facility may take a while to achieve full commercial operations.
In an unusual development in LNG markets, certain assessments of Atlantic basin charter rates have turned negative in recent days, suggesting owners are willing to take a loss on a round trip voyage rather than idle their vessel.
This may be explained by the absurdly high prices at which shipping operators are now forced to value boiloff gas and a general shift in LNG maritime traffic to the Atlantic basin due to more US-Europe voyages, which has increased vessel availability there compared to the Pacific Basin.
Previous winters had required inter-basin movements from the Atlantic to the Pacific, with ships going to Asia through the Cape of Good Hope or Suez Canal when Panama's waiting times piled up and added to ton-mile demand.
However, we may see charter rates pick up if Asian demand returns to the fore in the coming months, and vessels are eventually repositioned to the Pacific.
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