TTF Gets Stronger Against Other European Hubs on Restricted Injections Into Dutch Storages

This factor can already be named MVP (Most Valued Parameter) of 2021, referring to the impact that low levels of gas in the UGSs have on the pricing environment. In that context, the TTF hub has been especially supported in recent weeks as compared to other market areas.

NWE is particularly affected by the slow pace of injections into the underground facilities during this summer season. In early June, the storages in that region were just 31.6pc full versus 38.5pc for Central Europe. And the Netherlands was ranked last among all continental NWE countries with the Dutch UGS fullness standing at 21.7pc as of 4 June.

The Netherlands recorded an aggregated net gas injection of only 550 mcm in the last five weeks, although LNG send-out from the Gate terminal was at the near-maximum level for almost the whole of May. A large part of available volumes was essential for meeting weather-related demand, but when temperatures finally exceeded the seasonal norm in early June, thus creating conditions for higher injections into the storages, the send-out into the country’s transmission grid started to decrease. With regard to future LNG supplies, higher Asian premium resulting from stronger summer demand cannot but instill NWE players with a sort of pessimism.

In addition to that, Q2 Norwegian outages, which by the way have not reached their peak yet, further restricted injection potential of the Dutch market, contributing to higher TTF both on the near and far end of curve against other trading points.

In the months ahead, TTF spread to different areas, particularly on winter delivery contracts, will depend largely on the ability of Dutch market participants to enjoy access to additional volumes of gas and to have the necessary flexibility when selecting between supply sources. The fewer options players have, the stronger TTF is.

The opinions expressed in this blog are mine only and do not reflect the views of my employer

Europe’s Gas Storage Stocks Continue to Face Challenges on Road to Recovery

In May, the plot has taken another turn as the operations at several LNG terminals were suspended adversely impacting Europe’s import capacity, at a time when injections into the storages are lagging far behind the average pace. Following the shutdown of Montoir installation since early May and the planned maintenance on Dragon LNG that started in mid-May, Adriatic LNG halted send-out last week.

Both French and Italian terminals should resume operations in early June while the UK’s installation is expected to get back to work by the middle of next month. But it seems unlikely that European LNG imports will significantly improve, as the three terminals are coming back online at an unfavorable time in terms of competition with Asian importers that recently become much more active.

In addition to stronger seasonal demand for air-conditioning, buyers in East Asia still have fresh memories of this past winter which will provide support for restocking consumption in Q2 and Q3. Given the ongoing Norwegian maintenance succeeded by the outages on Yamal and Nord Stream pipelines in July, Europe can hardly relax in the coming months.

The opinions expressed in this blog are mine only and do not reflect the views of my employer

 

Best Couple Of 2021: Gas And Carbon Go Hand In Hand With One Another

In the first three days of the past trading week, TTF Year-Ahead dipped by about 12pc, just as the benchmark December 2021 EUA dropped over the same period. Gas contracts recorded sharp losses between 17 and 19 May despite the fundamentals remaining bullish (tighter summer supply in NWE, low storage levels, unseasonably cold weather), which again shows carbon’s influence on the wider energy complex.

Both EUA and gas were moving in parallel in the later half of the week as well, the difference being that the prices rebounded from Wednesday lows.

This week’s developments are fully in line with the process of increasing carbon-gas correlation, with extra dynamism coming from speculative players who flooded the emissions market over the past year. In that context, it has become critical to closely monitor how EUAs react to the stock market movements, which in turn affects the gas curve.

Correlation between the two commodities works equally the other way round. Due to its impact on EUA demand, gas often sets the tone for the emissions market, especially at times when carbon lacks reference points of its own. It is this two-way relationship that is the key for understanding the synchronization between carbon and gas markets.

The opinions expressed in this blog are mine only and do not reflect the views of my employer

 

Fill Up The Tank, Please: Europe Still Lacks Robust Injection Season

European gas market is in a unique situation this summer, viewed from a storage perspective. Q2 is already well underway but the regional facilities are on average 33pc full in mid-May, an increase of less than 4pp over the last month and a half. That is the lowest rate of growth from 1 April to 14 May since at least 2011, when the corresponding data became publicly available.

In many countries, the UGSs have started to go into stable injection mode during the past two weeks but the filling rates still remain low. For instance, the aggregated filling level of German sites went up by only 0.12pp a day during the first half of May while the daily rate for the same period of 2020 exceeded 0.20pp and was close to 0.50pp two years ago.

With limited supply in the regional market, players are actually losing valuable time accorded for restocking gas inventories, depleted by a record volume this past winter. More than six weeks have passed since the start of gas summer but, due to colder April temperatures and limited Russian supplies accompanied by Norwegian outages and May’s lower LNG sendout, Europe’s storages added 4 bcm in total. From 2018 to 2020, the build in inventories averaged 13 bcm over the same period.

The storage issue is naturally built into prices. Just have a look at the development of the spread between Winter 21-22 and Winter 22-23, which increased fourfold since Jan, reaching €5.3/MWh on 14 May. Bearing in mind that the works on the Norwegian fields should ramp up and competition for LNG cargoes with Asian buyers is strengthening, it is highly likely that this level is not the limit.

The opinions expressed in this blog are mine only and do not reflect the views of my employer.

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Carbon Rally to Push Coal Further Out Of Europe’s Energy Mix

Carbon price rally is just gaining momentum, and given the EU’s ambitious emission reduction targets, it is only a matter of time before EUAs reach another psychological level. In that context, the room for manoeuvre for Western European coal power plants is extremely limited.

One can hardly overestimate the importance of rising carbon allowances, as demonstrated by the fact that spark spreads in the region have remained much higher than dark ones during the last years. Between 1 April and 7 May 2021, the indicative front-month baseload spread for a medium-efficiency NWE gas-fired plant was €0.7/MWh while that for a 40pc coal unit stood at minus €5.5/MWh. Yet TTF Month-Ahead prices grew up by more than 25pc as compared to a 14pc increase in ARA coal prices over that period.

Coal still plays a significant role in Western Europe’s energy mix, most notably in Germany, as a great part of lignite and hard coal production was hedged in previous years with carbon prices ranging from €5 to €25/tCO2. Meanwhile, each new record set for EUA price recalls that the future of coal predetermined, just as it was practically inevitable that Pep Guardiola’s team would return to the UEFA Champions League final 🙂 But if it took the Catalan boss ten years to reach that stage, coal may become a thing of the past more quickly in Western Europe.

The opinions expressed in this blog are mine only and do not reflect the views of my employer.

KRK Terminal’s Receipts is a Microcosm of 2021 LNG Market

The Croatian FSRU became operational at the very beginning of this year, when suppliers actually lost interest in westward deliveries because LNG prices in the Asian region touched the skies amid unusually cold weather and shortage of vessels. There was only one cargo imported to the Krk terminal between January and February, a few weeks before the chaos in Asia began. Remarkably, the preliminary schedule for this year, published in Q3 2020, had foreseen the arrivals of five tankers in the first two months of 2021.

As the JKM-TTF spread had tightened, more and more cargoes made their way to Europe, as can be seen from the imports to Croatia starting from late Q1. In March and April, the country’s FSRU handled four carriers, half of which were loaded in the US that reacts to the market changes in the most timely manner among LNG producers. Another one was re-exported from the port of Zeebrugge, in sharp contrast to early 2021 when most cargoes redirected from Northwest Europe ended up in Asia.

Krk terminal is certainly not the only one in Europe which serves as an indicator of LNG market movements. However, if it may take quite a while to analyse larger installations, looking through Croatian imports can save you a lot of time. That is useful, isn’t it?

The opinions expressed in this blog are mine only and do not reflect the views of my employer

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Time Machine: TTF Returns to January Levels

This year, TTF Day-Ahead traded over the course of April have been, on average, more expensive than it was three months before, even with a sharp decrease on Friday, 23 April. As the causes of this month’s rise in European gas contracts – abnormally cold temperatures, delays in injections into the storages, Norwegian outages, record-high carbon prices, etc. – were being analysed multiple times, it may be interesting to look at the current developments from a different angle, by comparing with those a year ago.

Apr 2021 is the very opposite of Apr 2020 for the regional gas market, except perhaps in the area of LNG imports. This is largely due to the easing of Covid restrictions across Europe, but another thing is important in that context.

The significant difference in market environments, external backgrounds as well as expectations among players, now and then, yet again unsettles many of our assumptions about the speed at which a once static commodity has been recently evolved. Not so long ago, the conditions could not have changed so drastically over the period of 12 months, but in today’s reality even months can make a huge difference. With European decarbonization plans taking shape and competition between pipeline and LNG intensifying, high volatility will likely be more common in the gas market.

The opinions expressed in this blog are mine only and do not reflect the views of my employer

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Right Here, Right Now: Norwegian Outages Start Building Up

If Q2 2021 European gas market can be accompanied by a soundtrack, it will definitely be ‘Right Here, Right Now’ by Fatboy Slim. The name of that song accurately describes the dynamism of things taking place since the very beginning of this year’s gas summer.

Following the reversal in injections into the gas storages, Europe is already experiencing lower production from the NCS. Norwegian maintenance, that has started during the second ten days of April, represents the first significant decline in gas supplies to NWE since January, when players lost access to LNG amid soaring Asian premium and vessel shortages.

Over a period of two and a half months, the regional market is expected to be short 4.9 bcm of supplies from Norway, most of which fell between April and May. Q2 daily gas exports from the country are expected to be constrained by 18% on average as compared to the levels seen in late March.

2021 Norwegian outages are developing according to their usual timing, in contrast to last year. In 2020, the works on the fields and processing plants were postponed until Q3 due to Covid restrictions, thereby extending a series of outages initiated by the planned shutdowns of Nord Stream and Yamal pipelines. It assisted in clearing a part of oversupply, laying a foundation for the subsequent growth in prices.

What influence Norwegian maintenance will have on the market environment this time? This is not a simple question, given the need for filling up storages on the one hand and favourable conditions for Europe-bound LNG deliveries on the other. As of now, the most that can be said is that the longer UGSs do not go into injection mode, the stronger will be the effect of Norway’s lower supplies throughout this quarter.

The opinions expressed in this blog are mine only and do not reflect the views of my employer.

For a look at all of today’s economic events, check out our economic calendar.

Cold Weather Once Again Managed to Make Its Presence Felt

It looks as if this year’s weather is paying off the debts accumulated during the winters of 2019 and 2020 when the European gas market lost a sizeable portion of heating demand.

Although the winter has already passed, it is still early to disregard the temperature factor. This can be seen clearly in the Champions League quarter-final between Bayern and PSG that was played on 7 April amid heavy snowfall and below-freezing temperatures.

Another cold snap in Europe has resulted in higher prompt gas prices earlier in the week. Notwithstanding the losses made in the 7-9 April trading sessions, the average weekly TTF Day-Ahead rose by 5.5pc as compared to the previous week.

As the weather was getting colder, heating demand in NWE and CEE jumped by more than 40pc since late March, forcing players to interrupt net injections into the storages. Approximately 850 mcm was withdrawn from the regional facilities over the period from 6 to 9 April. The figure could have been even higher if the weather had been less windy at that time.

There is nothing unusual about the weather having a significant influence on the gas market environment during the shoulder period. But it is exactly the weather that acts as a ‘black swan’ event this year, having made waves in Asia and the US in January-February and continuing to make its presence felt in Europe for the fourth month in a row.

The opinions expressed in this blog are mine only and do not reflect the views of my employer.

For a look at all of today’s economic events, check out our economic calendar.

 

 

European Gas Market Welcomes Easter on The Rise

Gas volumes were being withdrawn from the storages over 130 consecutive days and, as soon as Day-Ahead dropped to a discount to Front-Month, net injections into the regional facilities resumed on 26 March.

This year, players began stockpiling nine days earlier than in 2020. As a result of an earlier start of injection season, gas prices saw strong growth in late Mar – early Apr. Prompt contracts have gained about 5pc this week alone, reaching the highest level since the beginning of Feb. Now, remember where the market stood a year ago, with coronavirus spreading across the continent, storages being more than 50pc full, and with Day-Ahead being assessed at €7/MWh or so.

The development of spread between Q2 and Q3 ’21 over the course of Mar provides another clear illustration of the attention players pay to the storage factor. If the former contract was trading at discount to the latter in the first half of Mar, then in the final days of winter Q2 flipped to a premium against Q3. This is despite the expectations that LNG imports to Europe will stay high in Apr-May.

The opinions expressed in this blog are mine only and do not reflect the views of my employer
For a look at all of today’s economic events, check out our economic calendar.

The Coming Gas Summer Must be Fundamentally Different from the One of 2020.

Europe’s storages are less than 30pc full in late Mar, for the first time in three years. Excluding 2019 and 2020, which stand apart with extremely high gas inventories, the regional UGSs became on average 86pc full at the end of 2014-18 summer periods.

To reach that level, it would be necessary to inject about 60 bcm between Apr and Sept 2021. In comparison, the facilities were fed with 45 bcm during the six-month period of 2020.

Stronger injection demand offers more opportunities for LNG players that have been focused on westward loadings in the last two months. European LNG imports should reach a new record high in March and unlikely to run out of steam in the near term.

It would obviously be too simplistic to assume that prices in Europe will depend solely on these two factors during the summer, bearing in mind May-June maintenance works in Norway, shares of wind, solar and hydropower in electricity generation, gas vs. coal competition, etc. Nonetheless, it is LNG import dynamics and injection demand that will define the general market sentiment in the coming period.

The coming gas summer must be fundamentally different from the one of 2020.

As a result of cold winter weather, Europe’s storages are less than 30pc full in late Mar, for the first time in three years. Excluding 2019 and 2020, which stand apart with extremely high gas inventories, the regional UGSs became on average 86pc full at the end of 2014-18 summer periods. To reach that level, it would be necessary to inject about 60 bcm into the regional facilities between Apr and Sept 2021. In comparison, the storages were fed with 45 bcm during the six-month period of 2020.

Much stronger injection demand offers additional opportunities for LNG players that have been focused on westward loadings in the last two months amid tighter spreads between JKM and TTF. It appears that European LNG imports should reach a new record high in March and unlikely to run out of steam in the near term amid the current market conditionы.

It would obviously be too simplistic to assume that prices in Europe will depend solely on these two factors during the summer, bearing in mind May-June maintenance works in Norway, shares of wind, solar and hydropower in electricity generation, competition between gas and coal, etc. Nonetheless, it is LNG import dynamics and injection demand that will define the general market sentiment in the coming period. Which one do you think will lead the game?

The opinions expressed in this blog are mine only and do not reflect the views of my employer

Need Another Proof that LNG is the Most Dynamic Part of the Global NatGas Market?

There were few cargoes delivered to NWE in early Jan, but already in mid-Mar the imports to UK, NL, BE and France’s Dunkirk set a new weekly record. With the tightening in JKM-TTF spread and higher withdrawal rates amid lack of growth in pipeline flows into the region, favourable conditions were created for LNG.

NWE had become so attractive for traders, that tankers started to move northwards even from Med facilities. Algerian and Egyptian cargoes can rarely be found in NWE, but this week has seen the arrival of three 70kt carriers in Rotterdam, Zeebrugge and Dunkirk. Never before had players delivered so much LNG to those terminals from North Africa.

In the coming months, there will likely be a sufficient number of cargoes offered in NWE, which appears similar to that of 2020. However, on the demand side the market differs considerably from where it stood a year ago, given the need to replenish the depleted UGSs.

The opinions expressed in this blog are mine only and do not reflect the views of my employer