Interactive: European LNG imports tracker

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The sharp fall in Russian pipeline gas supplies to Europe through 2022 and the EU’s decision to diversify its gas imports away from Russia has prompted a major increase in European LNG imports and a large-scale expansion of LNG regasification capacity.

The EU, UK and Turkey saw a combined 60% year-on-year increase in imports in 2022 and intake kept pace in 2023, with some 125.5 million mt (173 Bcm) of LNG delivered last year, marginally lower than the 127.6 million mt in 2022, S&P Global Commodity Insights data showed.

The expansion of Europe’s import capacity is also set to continue, with more floating capacity additions expected in Germany in 2024 and Greece having taken the first LNG into its new Alexandroupolis FSRU in February.

While US dominance over European LNG imports endures, Russia and Qatar are both still key supply sources, and Algerian LNG exports to Europe rose by some 22% year-on-year in 2023.

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News

India's AMNS signs 500,000 mt/year LNG deal with Shell at 11.5% slope to crude oil

Arcelor Mittal Nippon Steel India has signed a deal with Shell for the supply of 500,000 mt/year of LNG starting from 2027 for 10 years, at an 11.5% slope to crude oil, sources told S&P Global Commodity Insights May 23. This marks the first deal priced below 12% slope to crude oil since Europe switched to consuming LNG after reducing pipeline gas consumption from Russia following its invasion of Ukraine. The deal involves certain flexibilities that the seller can exercise, such as one additional cargo per year, sources said. "The contract is signed for 10 years for 500,000 mt/year starting in 2027 and there is no DQT (downward quantity tolerance)," one of the sources said. Sources added that the deal was likely to include some flexibility around deliveries at the Hazira LNG terminal. Official spokespersons for Arcelor Mittal Nippon Steel India and Shell did not respond to queries at the time of writing. Below 12% slope After Russia's invasion of Ukraine, the LNG market was focused on energy security. As global LNG markets adjusted to the change and spot prices eased from the record high seen in 2022, affordability has become an important component of energy security for South Asian and Southeast Asian buyers. A Singapore-based source said the news was big because, with this deal, it seemed that the market has corrected below 12% slope to crude oil. A Europe-based source said the price was understandable if there was some flexibility afforded in the deal for the supplier. LNG buyers have been negotiating hard to lower oil-linked price slopes for long-term contracts as market participants expect additional volumes from the US and Qatar to be made available later this decade. The expectation of additional supply being available from 2025 onward has put pressure on long-term pricing slopes, especially as LNG spot prices have eased from the elevated levels seen in 2022 and early 2023. Platts assessed the West India Marker, the benchmark price for LNG cargoes delivered to west India ports and the Middle East, for July at $11.163/MMBtu on May 21, according to S&P Global Commodity Insights data. According to the forward curve on May 21, the WIM derivative for calendar year 2027 was assessed at $9.675/MMBtu.

News

Potential record-setting hurricane season is forecast and may weaken energy demand, prices

The National Oceanic and Atmospheric Administration on May 23 projected the most tropical cyclones ever in its early hurricane season forecast, and such storms could weaken energy demand and prices in landfall areas during what may be an otherwise warmer-than-normal summer. In particular, NOAA made the following forecast: 17-25 named storms, up from 14.7 for 1991-2023 Eight to 13 hurricanes, up from 7.2 for 1991-2023 Four to seven major hurricanes, up from 3.2 for 1991-2023 At the high end of the forecast, the season could equal 2020's record seven major hurricanes and approach 2020's record 30 named storms and 2005's record 15 hurricanes. "As one of the strongest El Nino ever observed nears its end, NOAA scientists predict a quick transition to La Nina conditions, which are conducive to Atlantic hurricane activity because La Nina tends to lessen wind shear in the tropics," NOAA said. "At the same time, abundant oceanic heat content in the tropical Atlantic Ocean and Caribbean Sea creates more energy to fuel storm development." Energy market impacts Tropical cyclones making landfall 2021 through 2023 cut peakloads at affected grids an average of 18%, power burns an average of 17%, and power prices -- excluding the Electric Reliability Council of Texas South Hub's extreme case in 2023 -- an average of 38%. ERCOT had one of its hottest summers on record in 2023, so day-ahead on-peak locational marginal prices at the South Hub averaged almost $795/MWh on Aug. 15, the Tuesday before Tropical Storm Harold hit South Texas on Tuesday, Aug. 22, when prices averaged less than $60/MWh. The change was drastic, inasmuch as ERCOT load fell just 1.5% on the week, and natural gas power burn actually increased 10.7%. South Texas has a large wind generation fleet, which may have been taken offline during the storm due to transmission constraints or grid reliability concerns. Grant Gunter, energy markets expert at PA Consulting, said hurricanes "can be a mixed bag for supply and demand" for natural gas. The production impact "used to be the typical thinking for hurricanes," as they would diminish offshore production as platforms shut down and evacuate, Gunter said in a May 23 email. "However, as offshore gas production has fallen and moved more onshore, these impacts have become more muted," Gunter said. "A mild hurricane likely won't impact onshore Gulf Coast production all that much." In contrast, hurricanes can have a big impact on power burn and shut-in LNG exports, Gunter said. The National Weather Service on May 16 forecast enhanced chances – 40% to 60% -- for above-normal temperatures for June, July and August across the US South Atlantic and Gulf Coast. CustomWeather on May 22 forecast temperatures to be zero to two degrees above normal across the region in June. "Power outages naturally reduce power burn demand, which is a significant source of demand in Texas and the Southeast," Gunter said. "LNG facilities, which are situated primarily along the Texas and Louisiana Gulf Coast, will usually halt exports during hurricanes due to rough seas and an inability to bring in tankers to load. These shut-ins can last 3-5 days or more depending on the severity of the storm, and a single LNG facility shutting in can result in 2+ Bcf/d of demand going offline. Ian Palao, vice president for strategic energy services at POWWR, an energy management service, advised considering ERCOT's likely heavy heat-driven power demand, despite the hurricane forecast. "Because of the random nature of hurricane landfall, I wouldn't expect an increased level of forecasted tropical activity to nullify the potential heat risk this far out in time," Palao said in a May 23 email. Hurricanes in the past have affected not only the demand side from reduced load due to system outages but also the supply side, due to reduced offshore production. "I would say hurricanes have more of a demand (gas burn for electricity generation) impact than a supply impact as significant swaths of cities can be off the grid for upwards of a week or more (thinking of Hurricanes Harvey and Ida)," Palao said. "Additionally, given that on-shore gas production far outpaces off-shore production, a temporary shutdown of offshore rigs will be but a blip in total supply." Risk management As of May 22, day-weighted average on-peak power forwards for the 2024 hurricane season, June 1 through Nov. 30, were less than day-ahead on-peak prices at relevant hub in ERCOT, but had premiums in comparison with day-ahead on-peak power in the Southeast and at the Midcontinent Independent System Operator's Louisiana Hub. Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, a Houston-based interdealer commodity broker, said "over all forward market seems to mostly be pricing in generalized 'heavy load' season prices that have been driven up" by weather-normalized load growth. "From the risk side, there are some very difficult to predict effects of what a major hurricane would do to any of the Southern control districts," Faulkner said in a May 23 email. "Florida is the best equipped to deal with a major strike. Texas? Well the derecho storms that recently rolled through highlight the extreme risk that a Houston-centered major wind event hurricane could cause." Gary Germeroth, a PA Consulting energy market risk management expert, said the location and strength of such storms affect the risk of lost load the most. "The forward markets, even at a near coastal hub months before the hurricane season begins, do not have any information or data that indicates the timing or severity of hurricane landfall, so the incorporation of a long-term forecast like this is interesting data to the market, but not likely a key component of forward price," Germeroth said in a May 23 email. Another risk to consider is the effect on solar installations, which have grown substantially over the past few years along the Gulf Coast, particularly in Florida and Texas. Tulane Energy Institute Associate Director Eric Smith said Florida's "new solar capabilities will be vulnerable to damage from wind-borne debris." "Texas is also vulnerable to wind damage to both solar and wind assets," Smith said May 23. But Derek HasBrouck, PA Consulting's ReliabilityOne program director in a May 23 email that storm tracks from the more active seasons of 2004 and 2005 show the grid and solar installations are distributed widely over the peninsula, such that "any one hurricane, or even several, are not going to make the sort of direct hits required to cause extensive damage." "And, to the extent those installations have associated storage and/or inverters capable of operating islanded from the grid, any installations that are not damaged are useful resources for consumers and/or the utility," HasBrouck said. Effects on oil, gas, LNG The US Energy Information Administration noted that production of crude oil dipped during Hurricanes Katrina and Rita in 2005, Hurricanes Gustav and Ike in 2008 and Hurricane Ida in 2021. Export terminals for liquefied natural gas (LNG) on the Gulf Coast could be in harm's way as well, the EIA said in a May 22 analysis. The US exports about 13 billion cubic feet of LNG daily, mainly through Gulf Coast facilities. "Although LNG facilities generally have many layers of protection from direct impact, hurricanes can damage electrical and marine infrastructure and hamper ship movement," the EIA analysis said. Hurricane Laura in 2020 temporarily halted LNG exports from Louisiana's Sabine Pass and Cameron LNG facilities. All that said, OTC Global Holdings' Faulkner described forecasts for an abnormally active hurricane season are "borderline useless." "Last year was supposed to be horrible and ended up being rather benign," Faulkner said May 23. "Thus the prognosticating and fear mongering is an exercise designed to drive clicks and induce fear in the wider populace." But Faulkner acknowledged that if a hurricane does approach the Gulf Coast, its effect "could be serious, especially given the importance of LNG exports," causing gas prices to "plummet."

News

Global LNG markets finely balanced amid strong Asian demand: Shell Australia

Global LNG markets will likely be finely balanced as a potential slowdown in the rate of delivery of some projects out of the US and growing demand in Asia tempers the impact of new international supply coming online towards the end of the decade, Shell Australia Country Chair Cecile Wake said May 22. The combination of meeting energy needs while grappling with declining domestic production as well as advancing decarbonization goals is propelling countries such as the Philippines, Thailand, Vietnam, and Bangladesh towards LNG, Wake told S&P Global Commodity Insights on the sidelines of the Australian Energy Producers conference in Perth. "I think we describe it as latent demand in South and Southeast Asia," she said, noting that within the region some markets were less price elastic than the others. LNG buyers, particularly from price-sensitive markets such as India and Bangladesh, stayed away through most of 2022 amid high prices and volatile markets following the Russia-Ukraine war. The Platts JKM -- the benchmark price for LNG cargoes delivered to Northeast Asia-- averaged about $33.9789/MMBtu for calendar-year 2022, compared with $18.59543/MMBtu in 2021, according to data from Commodity Insights. The Platts assessed JKM for July was assessed at $11.485/MMBtu on May 21, down 0.1% on the day, the data showed. Despite this price elasticity of demand, most buyers were likely to have a mix of spot and long term to create physical hedges and manage potential supply risks, she said. Shell, for its part, was competitively positioned to serve Asian markets and its trading model allows the company to supply a combination of term cargoes to buyers while also maintaining a flexible portfolio to cater to the needs of evolving markets, Wake said. In 2023, Shell delivered the first commissioning cargo to Vietnam's first LNG import terminal while also supplying the first LNG cargo delivery at Philippines' Batangas LNG terminal. Confidence in Prelude FLNG In Australia, Shell operated projects include Prelude, Crux, and QGC and non-operated ones comprise Browse, Gorgon, North West Shelf, and Arrow. The operations in Australia are poised to maintain their supply position, ensuring high utilization and high reliability of the company's assets, Wake said. "At Prelude, the story of the last 18 months has been one of increasing reliability, increasing utilization and a real maturation of that asset," she said. This comes as Prelude Floating LNG facility faced several outages since it started production in June 2019, with one such shutdown resulting from a fire that broke out at the facility in December 2021 and caused a full power loss. Wake anticipated that volumes at Prelude this year will likely be higher than last year as the facility does not have a statutory turnaround. "So, when we look at it through the utilization of the facility and the reliability of the facility, it has come out of that statutory shutdown with both higher reliability and a much tighter band of where we think the performance range is," Wake shared. Steering through regulations The Western Australian Domestic Gas Policy seeks to make gas equivalent to 15% of exports available for Western Australian consumers. "We felt that we were well engaged and had the opportunity to put our views forward in the context of WA Dom gas. We are firm in our view that in both WA and the East Coast, a functioning domestic market is key and that we've got a positive role in that," Wake said. "And we would also say that we believe that giving producers the opportunity to access export markets as well as domestic markets will result in more gas coming out of the ground and therefore more gas available for domestic markets," Wake added. When it came to the consultation on offshore EP, Shell had an opportunity to put across its views as part of a consultation, she said. "However, it is very disappointing that that a really important and vital reform of that legislation had been delayed," Wake added. The legislation to implement outcomes of the review that included a focus on clarifying the consultation requirements for offshore approvals did not pass the Senate last week, as worker safety provisions and ensuring certainty of the Petroleum Resource Rent Tax reforms had been prioritized, Minister for Resources and Minister for Northern Australia Madeleine King said May 21 at the same event. An adequate and appropriate offshore regulatory regime would not only benefit gas producers but will also be in the interests of the community, Wake said. "Stakeholders needed that reform to come through. So, we would certainly be looking for that to come forward again as soon as possible," she added.

News

European LNG prices reach five-month high as global competition heats up

European LNG prices rose to a five-month high as ongoing geopolitical risk factors and tightness in European LNG supply intensified competition with other global demand hubs, market sources said. Platts, part of S&P Global Commodity Insights, assessed the DES Northwest Europe and Mediterranean markers for July at $10.445/MMBtu May 21, up 33.4 cents/MMBtu on the day, and at the highest levels seen since Dec. 27, when it was at $10.756/MMBtu. At the same time, Platts assessed the East Med marker at $10.645/MMBtu, also the highest seen since Dec. 27. LNG prices across Europe are under pressure, with market participants looking to compete for cargoes against Asia. Heat waves in Asia have sparked stronger seasonal demand, creating sturdy competition between the European and Asian LNG supply. In comparison, JKM also recently reached a price high of $11.498/MMBtu on May 20 -- the highest since Dec. 18 -- before falling slightly to $11.485/MMBtu May 21, Commodity Insights data showed. Although Europe is comfortable with high gas inventories, European LNG supply has constricted week on week. In both the NWE and Mediterranean, LNG traders saw sellers with the flexibility in taking cargoes toward Asia over Northwest Europe and suggested that prices in Europe need to increase further to attract selling interest. "No expectation [for demand] to pick up, people cannot pay, [Europe is] completely out of price," an LNG trader said. LNG dynamics While natural gas prices have strengthened recently amid continued geopolitical uncertainty and a tightening supply environment for both pipeline flows and LNG imports into the continent, European natural gas prices have yet to reach highs touched in mid-April. Despite an uptick in planned maintenance on the Norwegian Continental Shelf, which analysts at Commodity Insights expect will reduce flows from these assets by 11% month on month, Norwegian gas nominations have remained relatively strong averaging 300.5 million cu m/d in May so far basis data from offshore pipeline Gassco. Although most of the ongoing maintenances on the Atlantic side are planned, the market is still wary of any potential extensions which could put pressure on the market going into the third quarter, where injections are expected to be stronger. "There is a lot of maintenance in the North Sea...Just because [the maintenances] are planned doesn't reduce the potential impact if things go wrong," an Atlantic-based trader said. "With a relatively tight LNG market, this skews risk to the upside." Narrow spreads Historically as TTF prices increase, LNG-TTF spreads would widen. However, LNG-TTF spreads have remained persistently narrow due to increased global competition for LNG, sources said. Traders pointed to a "new normal" with expectations that the spreads will stay narrow as European bids remain relatively strong to attract cargoes. "I am bullish on LNG-TTF spreads, TTF seems to be lagging behind the [geopolitical] news," a second LNG trader said, adding that European prices were still falling behind those seen in Asia. Platts assessed NWE LNG prices at a 17.5 cents/MMBtu discount to the TTF Dutch gas hub price. The discount has averaged around 41 cents/MMBtu this year so far, compared with the 2023 average of $1.70/MMBtu. Similarly, East and West Med prices have been strong compared with TTF which has made it uneconomical to import LNG, pushing European and Med market participants to replenish supply on inland pipeline volumes. "PVB [the Spanish gas hub price] has been strengthening the past few days which is indicating a tightening [LNG] market and that is the same in the East Med too," the second LNG trader said. A Med-based trader said: "[The] market seems tight, and any news can push prices to spike." "Pipegas has great activity, we have this LNG freeze, but pipeline gas is a more hot environment, especially with the narrow LNG-TTF spreads it makes more sense to buy on gas," another Med-based trader said. However, the tight spreads were disincentivizing LNG flows into the continent as the prices, albeit high for European buyers, were unable to compete with the cargoes heading to Asia. "The only ones that are buying is because they have a firm commitment or they really need it," another trader said. "Everyone is cancelling." This is reflected in the low LNG imports into the continent accompanied with gas sendout levels from LNG facilities at multimonth lows.