Asia reduces gas demand and boosts European supply
Juan Antonio Martínez & Leonardo Gago (ASE Group) | More liquefied natural gas (LNG) is arriving in European ports and has lowered the daily price and that of immediate short-term gas products at the Dutch TTF. For the time being, the increase in LNG imports is offsetting the tension on Russian supply.
In the first quarter of 2022, Russian exports to the EU had fallen by 35% compared to the 2016-2021 average in the first quarter, while LNG cargoes arriving at European ports continue to break records. LNG imports, at 32%, are currently Europe’s main source of supply, ahead of gas pipelines from Norway (27%) and Russia (24%).
China’s strict COVID-19 containment, along with high LNG prices and mild temperatures, have reduced its demand. In the first quarter, its LNG imports are down 11.2% compared to the same period in 2021. We are in a shoulder season, where its gas demand is lower, but in summer high temperatures can increase its cooling needs. And, in any case, a recovery is expected at the end of the year because of its government policy of switching from coal to gas, to improve air quality.
In Spain, the increase in LNG imports and the stability of the Algerian gas pipeline, as well as the high level of renewable production recorded in April, led the spot price of Spanish gas (MIBGAS) to post a strong discount of more than €9. /MWh on the Dutch TTF, the reference market in Europe.
The decline in the TTF 2022 futures curve over the past few weeks would indicate a perceived low risk of Russian gas supply disruption than market values and good expectations for LNG arrivals in Europe. This contrasts with the possibility that the war drags on and that Russia could extend the gas supply cut to other EU countries for not paying in rubles, as it has already done with Poland and Bulgaria.
But what strikes the analysts of the ASE group the most is a significant rise in prices of the long-term curve in the TTF (2023-25). Its magnitude, which exceeds 45%, cannot be explained by the rise in coal prices and CO2 emissions, although they have increased slightly. Yr-23 is up over 45% and Yr-24 up 50%. This is an unprecedented increase over the long term.