Rivalry deepening in Europe’s gas markets as supplies balloon

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A gas flare burns at the Yamal LNG plant, operated by Novatek, in Sabetta, Russia. With supply increasing from exporters such as the US and Russia, imports are expected to remain high in Europe through the next winter.

With only a few months of the northern hemisphere winter remaining, natural gas suppliers are vying to meet Europe’s remaining demand.The amount of liquefied natural gas being pumped from the region’s terminals is near the highest this decade while mild weather and higher renewable generation have damped demand and left storage levels looking healthy.Add to that weather forecasts that indicate a cold snap might not be as severe as previously thought and it’s no wonder that prices are plummeting.

“LNG is going to swell summer supply as well, so the market will need to get more gas into power, and that means lower gas prices relative to coal,” said Trevor Sikorski, an analyst at Energy Aspects Ltd, an industry consultant in London. Coal is now looking expensive for the summer months of this year, taking into account the price of carbon allowances, he said. Gas for February in the Netherlands, Europe’s biggest traded market, fell 2% to €20.85 a megawatt-hour, extending its decline to 7.8% last week, the biggest drop this year. The premium of natural gas for March, the last month of winter, over April, the first of summer, narrowed to a record last week.That suggests that traders don’t see a high end-of-winter price risk.

Weather models have been raising temperature expectations for northwest Europe. They are seen near normal today, versus forecasts seven days ago for 2 degrees Celsius (3.6 Fahrenheit) colder than usual. Gas supply has dominated traders’ analysis since the end of last year as inventories, one of the main sources of supply flexibility, were refilled after being severely depleted last winter. Storage is now seen ending March at more than double last year’s levels, according to Bloomberg NEF. Shrinking LNG prices in Asia, the biggest user of the super-chilled fuel, have helped contribute to the record volumes in northwest Europe’s traded markets. With supply increasing from new exporters such as the US and Russia, imports are expected to remain high through the next winter.

“A continuing wall of LNG is breaking over Europe,” said Nick Campbell, a director at industry consultant Inspired Energy Plc. UK gas for summer 2019 broke through the key level of 52 pence a therm ($6.83 a million British thermal units) Friday morning, making the price outlook more bearish, said Angela Miller, an energy trader at Inenco Group Ltd in Lytham, England, which provides energy-management services. That level was last May’s peak price. “The expectation of milder weather, strong LNG and ample stocks suggest there is significant downside if forecasts for mid-late February continue to be revised warmer,” Miller said. “A breach of key technical support levels this morning further supports this view.”

Sources and photo-credits: Bloomberg,Gulf Times