Europe's LNG Glut Comes to an End: TImera

Northwest Europe's abundance of LNG is now tightening as demand rises in Asia and US terminals are shut in, energy consultancy Timera said July 17. Prices at the Dutch gas hub have risen in anticipation of a more constrained supply outlook, it said.

"After plunging through Henry Hub levels in Q2, European hub prices have been on a recovery path since early May. Front month prices remain weak but are now trading again at similar levels to Henry Hub. But the [Dutch] TTF forward curve has risen around 15% since early May. A very steep curve contango remains with forward prices increasing 250% over the next six months. That is also flagging a surge in power prices across Europe into the winter, given gas-fired power plants dominate price setting across European power markets.

Europe had been awash with surplus LNG in 2020, which had dragged TTF spot prices below €5/MWh, but European LNG regasification has been falling. There are two factors behind this, TImera said: US LNG shut ins are reducing surplus LNG cargoes flowing to Europe and Asian demand has started to recover. This sharp decline in LNG imports points to rising TTF prices over the coming months, it said, having earlier commented on better margins available for storage operators as the risk grows of a gas supply constraint.

NGW has reported on the rising injections into storage, including into facilities in Ukraine. That country alone could add another 15bn m³ of capacity to what is already available to traders active elsewhere in Europe and waivers of customs duty for short-term gas imports have simplified the process.

A brief dispute over pipeline maintenance between the Ukrainian and Slovakian pipeline operators in late June drew the market's attention to the risk of a curtailment but the two have since agreed terms so that more gas may "flow" through major interconnection at Velke Kapusany into Ukraine compared with the other pipeline at Budince. That 60mn m³/day since the start of July would work out at 6.3bn m³ until mid-October, when the storage injection season tends to give way to withdrawals.

However it is only available if Gazprom physically flows at least as much gas in the opposite direction as there is no compression to sent the gas east. The capacity is only available on an interruptible basis. Ukraine, hoping for more revenues from sales of storage capacity to third parties, has said that Eustream could offer more.