Gas market at an unstable equilibrium, waiting for supply hints
In Europe, the resumption of Russian gas flows to Germany at Mallnow and small injections into German storage at Rehden have calmed traders nerves and prices after a week of volatility
On the other hand, temperatures over the next few weeks are forecast to trend at or below normal through most of North West Europe. With storage levels at ~970 TWh, 2% down from last week, we are properly into the withdrawal season indicating that price risks are skewed to the upside if volumes from Russia turn out to be inconsistent.
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However, this risk may be limited if additional volumes indeed materialize.
How much they can send is still unclear, but based on historical tradeflows during the Oct-November period, we estimate that around 2 BCM of additional volumes may be available before the end of the year. What is clear, however, is that this remains less than adequate for a severe winter.
In the US, the earlier-than expected return of Shell’s Mars and Ursa platforms assets suggest a strengthening near term supply picture, restoring Gulf of Mexico production to near full capacity.
Consistent storage builds have helped end the injection season at around 3.6 TCF, about 3% below the 5-year average. Nevertheless, we expect that any elevated TTF and Asia spot prices will reflect an upside risk to Henry Hub prices throughout this winter, with continued risk from unusually low temperatures or unforeseen production constraints
Sabine Pass Train 6 and Calcasieu Pass are commissioning rapidly and are on track to produce test cargoes by year end. The market views them as essential to supply relief this winter, in addition to volumes from Russia to Europe.
Our figures suggest feedgas at Freeport is still fluctuating, having fallen to less than 500 MCFD on November 5 before recovering to around 1170 MCFD on Nov 8 and Nov 9, and are expected to hold below nameplate capacity for the next 2 weeks , indicating the loss of another 1-2 cargoes.
In Asia, sharp temperature drops across provinces in Northern China have marked the start of the heating season. However, buyers have largely restocked their LNG inventories.
Our data suggests imports into China are up by 19% and 7% on the year in October and September respectively, indicating the level of preparedness for winter demand.
Further, the ongoing high prices may be suppressing demand as there is limited room to increase domestic wholesale prices. Nevertheless, sustained below normal temperatures could deplete inventories rapidly and send buyers back to the spot market, where prices need to remain elevated to hold the arbitrage against the TTF.
Due to rising congestion at Panama the waiting time for ships without prior booking has risen to nearly 2.5 weeks, resulting in a 8.5% increase in US Gulf-Coast to Asia LNG charter rates week on week.
However, spot vessel availability remains thin, given strong term-chartering activity throughout the year, and any sublet vessels may have limited flexibility to meet urgent delivery requirements.
We expect some upside to LNG production in coming weeks due to the resumption of operations at Equatorial Guinea LNG, and partial production recovery at Atlantic LNG, Peru LNG, and Nigeria LNG, in addition to commissioning volumes at Sabine Pass Train 6 and Calcasieu Pass, which should help alleviate some supply side pressure during peak winter.
However, given the precarious state of the market, any delays or preponements may translate to a material impact on prices.
Overall, while the market appears to be heaving a sigh of relief, the healthier supply side picture is balanced by the onset of colder weather in North Asia and Europe and mounting vessel congestion at Panama Canal, and we are certainly not out of hot water yet.
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