Russia and Ukraine Gas update | New Daily Gas & LNG note | Price Signals |
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| | Xi Nan, Vice President Gas & LNG Markets Research |
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| | Welcome to our March Gas & LNG Markets newsletter. The escalating conflict in Ukraine and the strengthening prospect of sanctions on Russia’s energy industry have sent TTF to hit above $100 per million British thermal units (MMBtu) on 7th March and declined to $40 per MMBtu later in the same week. Gas fundamentals offer little insight into this wartime volatility. Russian pipeline flows remain stable, including flows transiting through Ukraine at around 80 million cubic meters per day (MMcmd). TTF prices, at the time of writing, follow a downward correction in line with oil prices, which are now back in the sub-$100 per barrel territory. However, with Russian forces pressing closer to the Kyiv city center and the EU expanding its sanctions to include key Russian iron and steel products, there is growing concern about potential gas flow cutoff by either Russia or Europe. Any escalation could further impose bullish pressure on European gas prices. If Europe must reduce dependence on Russian pipeline gas, which will turn the global gas and LNG markets into turmoil, can China take all of Europe’s gas volumes from Russia any time soon? The answer is no. A new round of Covid-19 lockdowns in China would mute industrial gas demand/import increase. Russian gas accounted for 10% of China’s gas imports in 2021, 6% of which was piped and 4% in the form of shipped LNG. Russian liquefaction plants are running above their nameplate capacity at the moment, so the chance of increasing a large amount of Russian LNG to China remains slim. Volumes through the Power of Siberia 1 are expected to rise from 10 Bcm in 2021 to the nameplate capacity 38 Bcm by 2025. Due to political, infrastructural and environmental constraints, the Power of Siberia 2 is still out of reach. China is unable to import significant additional volumes of Russian gas before 2030. Overall, Russia`s invasion of Ukraine dispute raises questions and concerns about European and global gas and LNG market stability. We have temporarily increased the frequency of our gas and LNG market notes to daily publication, to keep you informed of market developments. These include: - How have TTF spot prices developed and what are the drivers?
- What are the short-term signals to reflect market nervousness?
- What is the daily LNG traded volume from and to each LNG facility?
- Weather impact
- Fundamental factors
- Infrastructure developments
We walk you, our clients through in-depth research using our data analysis and forecasting capabilities, to provide a fact-based view on the global gas and LNG market. Thank you for reading. ------------- |
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| Gas and LNG daily outlook: Prices hold flat Published: 15 March 2022 Energy markets continue to be volatile today, with the TTF starting the day at about $35/MMBtu. Still, intra-day volatility, a characteristic of gas markets in recent times, has already pushed the price up to $40/MMBtu. Rystad Energy has observed a drop of about 2.8% in Russian exports to Europe, but that is possibly on account of a slight reduction in nominations as the Day Ahead - March settlement spread on the TTF has narrowed. Flows to Mallnow dropped to zero and have since moved to an eastbound mode. Storage volumes in Europe seem to be flattening out at around 300 TWh, suggesting an imminent start to the injection season, which is likely to be a metaphorical Mt. Everest, as the continent attempts to rebuild volumes to 90% capacity by 1 October. We may see slight bullish pressure from temperatures that have been revised lower but remain above normal. The outlook for wind generation has weakened. TTF prices may also experience a downward correction in line with oil prices, which are now back in the sub-$100 per barrel territory, driven by some optimism surrounding the ongoing Russia-Ukraine negotiations and reports of Russian support for the Iran nuclear deal. This, however, does not square off well with the situation on the ground in Ukraine, which remains dire with Russian forces pressing closer to the Kyiv city centre. The EU is also expanding its sanctions to include key Russian iron and steel products and remove Russia’s most favoured nation status. Sentiment in Asia has turned bearish due to expectations of a slowdown in Chinese industrial demand after a resurgence of Covid-19 cases that has prompted the government to place over 30 million people under lockdown. The market is also making a bearish readthrough from the possibility of spot Russian volumes finding a home within the region at discounted prices. Further downsides may, however, be limited on prospects of a cold front in northern China that may push temperatures below normal in coming weeks. |
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Gas and LNG daily outlook: Prices inch down Published: 14 March 2022 The TTF kicked off the week on a bearish note, opening at under $37 per million British thermal units (MMBtu), nearly 14% down from Friday’s close of under $43 per MMBtu. That said, volatility is rife, and prices increased 10.6% to $41 per MMBtu at the time of writing. The fundamentally bearish sentiment is supported by robust Russian exports to Europe, which despite some fluctuations over the weekend, are 3% up compared to 11 March, at around 263 million cubic meters per day (MMcmd). These export levels were last observed in mid-December 2021. However, this stability is far from guaranteed as active fighting has already damaged city as infrastructure in the Luhansk and Mykolaiv regions of Ukraine. The Transmission System Operator of Ukraine has also reported damage to the premises of an underground gas storage facility in Chernihiv. Norwegian flows are slightly down to around 331 MMcmd due to planned maintenance at the Kollsnes facility. Norwegian supply stands out as a stabilizing factor in a violently volatile market – state-controlled giant Equinor has expressed its intent to maintain stable gas flows to Europe during this time, and has delayed or cancelled maintenances in recent weeks. It also helps that temperature forecasts in Europe have continued to climb, offsetting concerns around reduced nuclear output in France. In the US, we observe an 88% month-on-month uptick in feedgas supply to Venture Global LNG’s Calcasieu Pass facility in Louisiana, which is set to load its third cargo in the coming days. We understand that this cargo, like both prior cargoes, is to be discharged in Europe. Oil prices are reflecting a bearish sentiment drawn from expectations of positive developments in the fourth round of negotiations between Russia and Ukraine, scheduled for 14 March. Nevertheless, the key word here is ‘expectations’, as Russia’s offensive has only intensified over the past few days, and positive outcomes are far from certain. The prospect of an escalatory breakdown of these talks continues to represent material upside risk to oil and gas prices. In Asia, Japan has ramped up spring maintenance of its thermal capacity amidst a mild weather outlook, which may weigh on liquefied natural gas (LNG) demand. Nevertheless, prices approaching $32 per MMBtu may see price-sensitive demand re-emerge, which may arrest further bearish developments. |
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