Temporary equilibrium in Europe, testing few weeks for Asia
Gas supplies to Europe are holding firm following the recent double whammy of the knocking out of some flows from a key Russian pipeline and a blast at a US liquefied natural gas (LNG) plant.
Higher-than-normal temperatures in the US have nudged Henry Hub prices up, while cooling demand in Japan looks set to peak earlier than expected.
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Shell’s giant Prelude FLNG project in Australia may face export pain as a strike over pay is set to drag into the middle of next month.
Temporary Equilibrium in Europe
Dutch TTF prices rose slightly to about $40.23 per million British thermal units (MMBtu) on June 29 compared to $39.98 per MMBtu at the start of the week.
Gas supplies to Europe are holding firm despite ongoing troubles at the Nord Stream 1 pipeline, leaving the market in equilibrium, albeit temporarily.
Russian pipeline flows from Nord Stream 1 were around 63 million cubic meters per day (MMcmd), while pipeline flows from the Ukraine transit were around 37 MMcmd, totalling around 100 MMcmd.
Despite being short of the 150 MMcmd level before Nord Stream 1 issues, gas flows have remained stable.
Market participants are still wary of further supply cuts and elevated prices though, as annual maintenance is planned for the pipeline from July 11 to July 21.
Stable pipeline flows from Norway continue to support Europe at 321 MMcmd.
In France, the CGT trade union announced that more strikes will be held this week, possibly impacting LNG and gas storage facilities.
Flows of gas from LNG terminals, post-regasification, in French facilities have not yet seen a noticeable disruption based on non-maintenance factors.
In Germany, concerns have arisen over whether there may even be two LNG terminals started up by next year.
The country had planned for several LNG import terminals by using floating storage regasification units (FSRU) to hasten the start-up process.
However, it has been reported that since no final investment decision has been made on the stationary terminals, construction has not yet started.
US temperatures on the rise
Henry Hub prices rose to $6.60 per MMBtu today, as compared to $6.15 per MMBtu on June 27.
This is most likely due to the cooling degree days (CDD) in the US Lower 48 increasing for the last three days as temperatures have been higher than normal.
This is expected to taper until early July before increasing for the remainder of the month.
Temperatures are expected to remain above normal, keeping gas demand for cooling elevated.
Asia heats up, demand for LNG less so
The Shell-operated Prelude FLNG facility offshore Western Australia, which has an annual capacity of 3.6 million tonnes per annum, may face an increased risk of export disruption as a strike over a pay dispute that started on June 10 will be extended to July 14.
The strike involved operators stopping work on several work processes related to the loading of LNG cargoes, which has not slowed down exports so far.
However, the recent extension of the strike includes a harsher stance by operators to stop even more important processes, which may cause a noticeable disruption until mid-July.
Prelude FLNG typically supplies cargoes to the Northeast Asian market, with South Korea, Japan and Taiwan the primary offtakers.
In Japan, the rainy season has unexpectedly given way to a hot summer much earlier this year than normal, with cooling demand expected to peak much earlier than previously thought.
This has left several power plants caught unawares as they undergo maintenance.
Tokyo Electric has managed to tide through by pulling power supplies from other regional power companies.
Several prefectures have already issued heat stroke alerts, with the Ministry of Economy, Trade & Industry (METI) urging citizens to use as little power where reasonably possible.
Despite concerns over power supplies clearly heating up, Japan is still expected to maintain a healthy level of LNG inventory for the next three months, which gives them more headroom to roll with the punches.
The impending warm summer in mainland China and Japan has not yet led to a drastic increase in demand for LNG cargoes in Asia this week.
Asia-delivered prices are still tracking behind Europe-delivered prices.
Given that most Northeast Asian buyers still have sufficiently healthy inventories, while there are increasing concerns about warm weather, it is not enough to force their hand in the market.
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