European gas prices are surging on concerns surrounding the Nord Stream 2 pipeline, creating an unusual imbalance with Asia markets.
Here is Rystad Energy’s weekly gas and LNG market note from our Senior Analyst Emily McClain:
Another week and another Nord Stream 2 episode pushes the TTF to nearly $50/Mmbtu and an unusual premium over Asia spot prices.
In Europe, the prompt restoration of Troll gas field production went unnoticed in the wake of escalating tensions between Russia and Ukraine, driving the TTF to all-time highs, reversing the price dynamic with Asia, and becoming the center of attention for US LNG.
The already completed Nord Stream 2 pipeline is caught in the geopolitical crossfire, with concerns around further delays or even potential non-certification driving strong bullish sentiment in European prices, bolstered by accelerating withdrawals from storage that now stands at less than 63% capacity.
Mixed weather signals continue to inject volatility with sporadic cold spells keeping consumers ill at ease.
Bearish sentiment has taken hold in the US, and, barring any unexpected cold snaps, a tight domestic market is unlikely.
Storage levels, primarily in line with the 5-year average, are expected to end the withdrawal season at around 3.7 TCF, with consistently mild weather weighing on overall gas demand.
However, we see further downside risk to the Henry Hub prices going into 2022 as we do not anticipate the current price levels to be sustainable.
The LNG market remains muted in Asia, with many Chinese terminals at capacity as milder than average weather and pollution restrictions curtail downstream demand.
The situation is similar in Japan, with high inventories and improved nuclear availability curbing spot buying activity.
Moreover, Asia spot prices at $35-plus/ Mmbtu levels discourage spot LNG activity, and utilities are slanting towards fuel oil for any emergency power needs.
That said, our data suggests Gorgon Train 3 and Prelude FLNG remain offline, a lurking bullish factor that may support prices despite the tepid buying environment.
However, logistical constraints have eased week on week, with spot charter rates registering sharp drops into sub-$200,000/ day territory across both basins, driven by improved vessel availability in the Atlantic.
Asian spot prices have not fully replicated the surge in the TTF, which may encourage further LNG deliveries into Europe and partially balance the prevailing bullish sentiment.
Overall, the market sentiment suggests prices may remain elevated and rife with volatility as Europe hangs onto the center stage granted last week when Nord Stream 2 concerns resurfaced.
