High Storage, Low Demand Spell Weak Q4 Gas: Marex Spectron (Update)

Adds details on UK-Ireland trade at end

Wholesale gas prices in Europe are likely to remain low for the rest of the year, as storage is nearly full and imports are at high levels once more after the Nord Stream maintenance programme, according to research published by Marex Spectron August 7.

But London-based research analyst Giacomo Masato told NGW that beyond that, how the market would turn out was anyone's guess: six months is as far ahead as it makes any sense to go. He declined to be drawn on supplies of Russian gas from January 1, when the transit agreement with Ukraine ends, for example.

Total supplies of  gas by pipeline and tanker are at above-average levels, although the margin – relative to the long-term mean – remains small. There has been a drop off in LNG deliveries since the end of Q1 as the Asian spot price, the Japan Korea Marker (JKM) owned by SP Global, has risen from parity with, to above the Dutch Title Transfer Facility price. The JKM is now about €3/MWh higher than the front-month northwest Europe price, he said.

It would take a prolonged heatwave, one lasting a few weeks, to eat up the surplus and raise prices, Masato said; that happened last year but this year's temperature peaks in Europe have only lasted a few days.

LNG volumes for the next two weeks are expected to stay at or a little above current levels, moving towards 12-13 TWh/week. And with more than two months of injection left, there is not much spare capacity in the EU 28 storage facilities. This time last year they were 62% full and now they are close to 90% full. 

As NGW reported, Ukraine is the biggest capacity holder within easy reach of the EU and it is on course to exceed comfortably its targeted 20bn m³ of inventory by mid-October.

Marex Spectron sees temperatures falling across most of central and northern Europe as the jet-stream tends to move over the region. This will also increase the wind output across central and northern Europe including the UK. The climate spread is predicted to further drop. When fossil fuels will be used to produce power, the priority will be given to natural gas, it said.

The short-term macroeconomic environment remains weak, but Masato said that there are signs of a recovery in Q4 based on provisional data from German manufacturers.

Separately, Marex Spectron announced August 7 had brokered the first ever UK-Irish hub locational spread, with Irish gas company Bord Gais Energy the buyer and seller at either end of the pipeline. 

Marex Spectron’s  head of energy sales Martin Regan said: "There have been seasonal swings in the pricing relationship between the IBP and the NBP and the development of this spread product allows greater transparency around this relationship. We predict that leveraging the deep existing pools of NBP liquidity through these spreads will help drive growth in IBP and are greatly encouraged by this development.”

He told NGW the market spread is "driven by a range of number of factors [such as the seasonal price of daily transportation capacity, the GB shorthaul tariff, the virtual reverse flow tariff from IBP to NBP and the supply demand/position in Ireland].  The IBP typically trades at NBP or at a small discount to NBP over the summer months. During winter months the IBP has traded at premiums of up to 12 pence/therm over NBP. The cost of transporting gas from the NBP to the IBP using an annual capacity reservation is about 3.5p/therm."