Rystad Energy’s weekly gas and LNG market note from our Senior Analyst Wei Xiong:
The marginal decline of Asian spot LNG prices since last week was caused by more cautious Chinese buyers, who have largely retreated from the spot market given forbiddingly high prices.
As a result, lost supply volumes through winter are now forecast to make up about 4.2% of the expected market.
On the demand side, LNG imports into China have remained resilient, especially from long term contracts, with utilization rates at key coastal terminals in excess of 90%.
Our data suggests Japanese and Korean buyers, who are likely holding ample inventories, have on-sold volumes to Chinese buyers . The buying spree from China is further reflected in regasification utilization hitting more than twice the nameplate capacity at certain terminals such as Qingdao and Jieyang .
Looking at profitability, we estimate that National Oil Companies (NOCs) and city gas companies may be bearing a loss of $15-$20/Mmbtu from spot imports, unable to fully pass on high prices to end users, with most of the losses expected to be borne by the NOCs. Nevertheless, the government directive to ensure supply security (by outbidding other buyers) is likely to overshadow these concerns in the short term.
In Europe, even with milder-than -normal temperatures over the past week, storage levels have started to decline - a 0.5% drop week on week per our calculations, and an earlier start of withdrawals compared to previous years may limit downside to easing TTF prices.
Further support is provided by a forecast of temperatures dropping close to normal across Northwest Europe in coming weeks, a revision from prior expectations of above-normal temperatures. However, this is balanced by the recent decline in coal prices that may trigger additional gas-to-coal switching in the continent.
The diplomatic fallout between Algeria and Morocco has started to affect pipeline flows from Algeria to Spain – we are observing a 50% drop in supplies month-on-month in October, with volumes expected to drop to zero after the contract for the Maghreb-Europe pipeline expires on Oct 31st.
Algeria is expected to route volumes through the MedGaz pipeline instead, but any disruption may expose them to the turbulent LNG shipping market to cover shortfalls, either by chartering more shipping capacity or by diverting LNG cargoes from other regions.
In the US, feedgas volumes to Freeport have been fluctuating between 1.2 BCFD and 1.6 BCFD since mid-September, likely due to reduced inbound flows and it is unclear if they are unrelated to power outages caused by Tropical Storm Nicholas.
Planned maintenance at Gulf South pipeline is expected to knock up to 650MCFD off the feedgas volume – equivalent to 2 cargoes from October 26th to Nov 9th.
We also observed a 16% drop in feedgas to Sabine Pass between the first and second half of October, due to ongoing mechanical issues at Train 3. At a time of record export demand, this signals upward pressure on the market if constraints are extended.
Henry Hub prices continue to remain above $5.00 per MMbtu and we anticipate market tightness to continue throughout the winter given limited supply and robust pipeline and LNG exports.
In the absence of a drastic change in fundamentals for gas markets, in the near term there is little to suggest sharp price movements in either direction.
Bearish factors such as high LNG inventories in Japan and widespread fuel switching throughout Asia are being balanced by tightening European fundamentals on account of limited incremental supply from Russia and reduced pipeline flows from Algeria, as well as growing expectations of colder than normal weather across Europe and Northeast Asia.
Else, Saudi Arabia has set a target of net zero greenhouse gas emissions by 2060, which doubles its annual plan to further reduce carbon emissions.
We currently estimate that Saudi Arabia’s total gas production will be around 132 Bcm in 2030. As a result, this ambitious plan would further stimulate the development pace of renewables like solar and wind with more investment.
Therefore, we expect that the Kingdom may reach a 15% renewable share in power mix by 2030 and 48% by 2040, to abide by its targets.
