While LNG demand still remains mostly lax across Europe and Asia, the specter of supply volatility helped stoke global prices Monday as traders reacted to a bevy of attacks in Russia and Ukraine.
The Dutch Title Transfer Facility (TTF) continued its upward march from last week, closing above $9/MMBtu. Asian liquefied natural gas prices followed upwards as well, pushing prices further out of the affordable range for price-sensitive buyers such as India.
Analysts with trading firm Energi Danmark wrote in a recent note that cooler forecasts were adding upside pressure in some of Europe’s largest power markets, but most of the price gains seem to be connected to anxiety over violence in both Russia and Ukraine over the weekend.
“European gas prices rose in Friday’s trading in an apparent reaction to an escalation to the Russian-Ukrainian war amid a large-scale Russian attack on the Ukrainian energy infrastructure system,” the analysts wrote. “The uptrend was also attributed to colder weather forecasts for the beginning of April, although no return of winter weather is in sight.”
Storage And Shipping Threats
On Sunday, Russian forces reportedly struck an underground gas storage facility in western Ukraine during a missile and drone assault. Days earlier, at least 137 people were killed in Moscow in a concert hall shooting reportedly connected to a faction of ISIS.
Ukraine’s underground storage operator, Naftogaz Group, reported the facility had been critically damaged, but that storage capacity wasn’t expected to be limited from the attack.
“The damaged surface infrastructure will need repairs; however, we have sufficient backup capacities in place to mitigate any immediate impacts," Naftogaz CEO Oleksiy Chernyshov said.
While storage in the European Union has remained well above average levels thanks to a relatively mild winter, storage facilities in Ukraine have helped some European firms stash additional gas beyond their respective regulatory requirements.
Ukraine’s Gas Transmission System Operator (GTSOU) reported European firms moved around 106 Bcf into underground storage facilities in the country last year. This year, Ukraine has received more than 20 Bcf as of the end of February.
The latest round of attacks comes as GTSOU is scheduled to meet with current and potential gas shippers to talk transmission plans for the upcoming injection and withdrawal seasons.
Energi Danmark also noted European oil prices rose, possibly in reaction to a ratcheting up of tensions in the Middle East. Attacks from Iranian-backed militants near key transit points in the Red Sea have continued to put pressure on shippers and increase cost and travel times for U.S. LNG to Asia.
The Houthi faction in Yemen warned Saudi Arabia not to join a U.S.-and-UK-led coalition in a counter attack on the groups positions around the Red Sea, sending another signal that the conflict in Gaza could be closer to evolving into war across the region.
Rystad Energy’s Kaushal Ramesh, head of Gas and LNG Analytics, said geopolitical impacts to oil prices could create “knock-on volatility” for oil-linked LNG contracts, potentially clouding the outlook for Asian buyers.
“As oil and gas prices have decoupled for most of this year, this could limit the prevailing bearish sentiment in gas markets rather than translate into an outright price increase,” Ramesh said in a recent note.
Threats to refining infrastructure, including alleged Ukrainian drone strikes on a Russian refinery last week, spiked Brent crude from around $82/bbl to over $87 before settling slightly lower at the start of this week.
A Typical Week?
In the U.S., gas price trends seem to be continuing on a spiral in the opposite direction of Europe and Asia. Ramesh said Henry Hub prices had dropped by around 8.5% through the month despite production curtailments.
There could be room for prices to drop further through the week depending on weather as “Freeport LNG’s maintenance plans remove around 1.4 Bcf/d of LNG feed gas demand across April and May,” Ramesh said.
On the buying side, activity remained muted to start the week with only one reported tender.
First Gen Corp. is seeking one cargo for delivery in the latter half of May. If fulfilled, it would make the sixth delivery at the Batangas terminal since operations ramped up last fall.
The Philippines joined the ranks of LNG importers last year with the commissioning of the first terminal in Ilijan, followed by Batangas. So far this year, almost 0.3 million metric tons (mmt) have been shipped to the Philippines, according to data from Kpler. The country imported 0.7 mmt all of last year.
Angola LNG offered to sell a cargo for May delivery to specific locations in Europe, the Middle East and North America.
Shipbroker Fearnleys AS wrote in a recent note that the spot market is replaying a “typical scenario” for the end of March, with “lower demand and moderated LNG prices,” but some signs of market revival were lurking around the corner.“
There is some uncertainty on the cargo side, with traders keeping a close eye on supply concerns such as from potential cyclone disruptions in Australia, unplanned maintenance of Norway’s Aasta gas field and some lower production out of Nigeria,” analysts wrote.
