LNG Prices in Europe Give Hope for the Remaining Q3 After Initial Glum

Rotterdam (The Netherlands): Prices of Liquified Natural Gas (LNG) slightly jumped again this week, like taking tiny steps towards market recovery. This is due to inventory movements towards the lower side and the ongoing maintenance shutdown in Norway, including at Troll, the gas field giant in the Norwegian sector, which reduced pipeline gas exports from Norway. After replacing Russia at the top of the list, Norway is now Europe’s single-largest gas supplier. The front-month price at Hamburg, Germany, was at 30.36 Euros per megawatt-hour (MWh) as of Friday (4th August), on an FD basis.

According to International Energy Agency (IEA), for the first half of 2023, European gas demand had fallen by over 10%, due to which Europe’s benchmark natural gas prices have also declined and are now traded at 80% lower than the records high last summer amid ample gas inventories and easing concerns about Europe’s gas supply. However, Comfortable inventory levels are capping the price gains much from Norwegian maintenance stoppages, keeping European prices on the lower side. The EU gas storage sites were 88% full as of 1st August, much higher than the five-year average, according to data from Gas Infrastructure Europe.

According to recent reports, LNG imports into Europe experienced a decline in July, reaching 8.6 million tons. This marks the lowest import volume since November 2021. The decrease can be attributed to low European benchmark natural gas prices, which have discouraged traders from placing higher volume orders. Conversely, sellers have turned their attention to the Asian market, where spot LNG prices have risen due to heatwaves in Japan, South Korea, and parts of China.

Analysts from ING have noted that the discount of European gas prices compared to Asian LNG prices has increased, reaching an average of around US$2.1/MMBtu in July. In comparison, the average discount in June 2023 was approximately US$0.3/MMBtu. This larger discount in the European gas market may divert more LNG cargoes towards Asia, thereby reducing the supply glut in the European market.

Global growth slowed down and is projected to remain at below-trend rates in 2023 and 2024. The international energy agency (IEA), in its latest quarterly gas market report, published in the third week of July, has changed its forecast to a decline of 7% from the previous forecast of 5% for OECD Europe gas demand in 2023 amid lower gas burn in the power sector and rapidly expanding renewable energy generation. The energy transition is a reality. However, cleaner fuels like natural gas will continue to play the game of sustainability and balance variable renewable energy at scale while reducing carbon emissions in the short term.