LNG prices entered the winter mode

LNG prices in NW Europe hit a two-month high of $33.22 per MMBtu due to the oncoming cold weather. At the same time, gas demand may begin to grow in China, where the authorities on December 7 announced the easing of restrictive measures due to COVID. So far, Europe has been paying more for LNG than buyers in Asia, but growing consumption in China could intensify the competition for spot gas shipments in the market.

European LNG prices climbed to a new ten-year high of $33.22 per MMBtu as a cold snap looms. Platts. The agency evaluates this quote on DES terms in the ports of North-West Europe, and the last time it exceeded this level was on September 29, when it reached $35,496 per MMBtu.

Platts estimates that the cost of an LNG cargo at a port in Northwest Europe is now $9.6 per MMBtu, almost 29% less than the spot price of gas at a TTF hub in the Netherlands.

LNG prices are usually slightly lower than hub gas prices, as they do not include regasification fees, but the current huge difference is due to the high loading of LNG receiving terminals and the insufficient capacity of the gas transportation infrastructure. At the same time, a week ago, the TTF premium reached $12.7 per MMBtu, so LNG prices are starting to catch up with gas prices at the hub.

The cost of LNG has risen due to forecasters predicting a cold snap in Northern Europe in the next two weeks.

A cold arctic cyclone is expected to hit the region, boosting heating demand. The most severe cooling will occur in the Scandinavian countries, as well as in Poland and Germany. At the same time, the wind in Europe has died down: the share of WPP generation in the energy balance is only 7.6% as of December 6. Underground inventories fell to 90.9%, according to Gas Infrastructure Europe, below the November high of 95%, but still higher than in previous years.

Due to the drastically reduced flow of pipeline gas from Russia, Europe this year was forced to buy more LNG, including from the Russian Federation, in order to be able to replenish stocks for the winter. At the same time, LNG shipments could be freely purchased by the EU countries, primarily due to weak demand for LNG in Asia. But in the near future the situation may change. The authorities of China, the largest consumer of gas in the Asian market, announced on December 7 that citizens of the country with asymptomatic COVID-19 and mild symptoms can be treated on their own while in home quarantine. In addition, the requirement to have a negative coronavirus test for domestic tourist trips has been abolished. This could be the first step towards opening up the economy. In addition, China also began to increase electricity consumption due to lower temperatures, and demand for coal and gas for heating also increased.

Coronavirus restrictions significantly affect demand: in China, in the structure of gas demand, over 40% is occupied by the industry, taking into account the chemical industry, independent expert Alexander Sobko notes. “But high gas prices also limit demand, which factor will outweigh is still unclear,” he says. In addition, he adds, the influence of weather increases in winter: according to some estimates, during the heating season, a temperature deviation of one degree from the average leads to a change in daily demand for gas by 3%.

Tatyana Dyatel