International gas prices lowered by favorable conditions

More favorable market conditions of late have prompted a de-escalation of international gas prices, currently on a downward trajectory. This morning, the international price for natural gas reached as low as 107.355 euros per MWh, a new four-month low.

Market officials explained that LNG is currently available in abundance with some tankers unable to secure delivery destinations as Europe’s storage facilities are close to full.

At the same time, demand for Russian gas in Asia, primarily China – where Russia has turned to as a result of restricted exports to Europe – has fallen significantly. Mild weather conditions in Europe at present have helped contain demand for gas.

This gas price drop will not become fully apparent in the retail market until mid-November – unless a new price surge is experienced – as prices are set based on the previous month’s prices.

Political agreement sought for gas price cap, eyes on Germany

Though no gas price-cap decision is expected at today’s informal EU meeting of heads of state, participants will be expected to establish the basis for a political agreement at the European Council meeting on October 20.

All eyes are on Germany following a significant step taken by the European Commission to adopt a proposal forwarded by 15 EU member states supporting a price cap on gas. The German government now appears to the considering the proposal but an agreement is not yet guaranteed.

If Berlin is to accept the gas price cap proposal, assurances will be needed on how the risk of LNG shipments straying to Asian markets – where buyers appear willing to offer whatever sums are necessary to secure shipments, instead of staying in Europe – may be eliminated.

Another issue the German government would want addressed to offer its consent concerns how a rise in gas demand, as a result of lower prices, can be prevented.

Disagreement between Berlin and other EU member states on a gas price cap has now somewhat softened. The matter is gradually shifting away from the political sphere and closer to market reality.

Greece, Belgium, Italy, Poland and Spain, the five EU member states most supportive of a price cap on natural gas, represent the nucleus of the 15 member states calling for a gas price cap and are working feverishly on a flexible proposal to be forwarded to the European Commission as soon as possible.

Firmest gas price cap backers in talks with German minister

The energy ministers of Greece, Belgium, Italy, Poland and Spain, representing the five EU member states most supportive of a price cap on natural gas, are scheduled to stage a teleconference with their German counterpart Robert Habeck today to analyze their price-cap proposal in an effort to overcome Germany’s resistance.

Berlin’s opposition to a European gas price cap and unilateral announcement of a 200 billion-euro national package for the energy crisis have disappointed many European governments, going into an informal EU meeting of heads of state this Friday with little hope of bold decisions.

EU member states are generally feeling increasingly frustrated by Germany’s refusal to back a collective European decision for the energy crisis, a stance Berlin will not be able to keep justifying.

According to sources, the group of five’s gas price cap proposal is set at a level that would ensure gas suppliers do not turn their backs on Europe and send their tankers to markets in Asia, where demand is set to rise in the lead-up to winter.

To guarantee supply to Europe, the continent’s price cap level will need to be set slightly higher than price levels at Asian energy exchanges.

 

Adverse market conditions pushing gas prices to new record levels

Europe’s energy market appears all the more likely to remain stuck in an extended energy crisis of new record levels for natural gas prices, and, by extension, electricity prices, analysts are projecting

Yesterday, gas prices at the Dutch TTF exchange neared a six-month high, rising by over 48 euros in a day as a response to an upcoming three-day disruption of operations at Nord Stream I at the end of the month for maintenance work.

European officials fear an extended disruption of Nord Stream I, beyond the scheduled three-day period.

Gas futures contracts for September yesterday reached as high as 293 euros per MWh, the highest level since March 8.

The energy situation in the European Union in the coming autumn and winter is going to be extremely difficult, the SEB bank noted in a report.

Yesterday, investment bank Citigroup warned that the inflation rate in the UK may reach 19 percent in early 2023 as a result of skyrocketing gas prices, projected to rise almost fivefold compared to the beginning of this year.

Europe will need to compete with major Asian LNG importers such as China, Japan and South Korea to secure required LNG loads, not subject to long-term supply agreements.

LNG prices in Asia have exceeded 57 dollars per million BTU, some loads offered for nearly 60 dollars per million BTU.

LNG order costs fall as much as 40% below TTF prices

The cost of LNG orders placed in recent days has fallen 10 to 40 percent below levels at the Dutch TTF exchange, driven lower by fine weather around Europe and subdued demand in Asia as a result of lockdown restrictions imposed over the past two months by authorities in China, insisting on a zero-Covid policy.

LNG price levels are also lower at the TTF exchange, easing to levels between 93.5 and 94 euros per MWh, the lowest since February.

Market pressure has also eased as a decision by Ukraine to disrupt a pipeline supplying Russian gas to Europe has had less negative impact than initially feared.

Ukraine’s decision, believed to have been taken to pressure the West for stricter sanctions against Russia, prompted Russia’s Gazprom to find a bypass solution through alternative routes to the EU.

These developments could lead to a significant reduction in wholesale electricity prices as a result of less price pressure faced by electricity producers.

The duration of China’s lockdown will greatly shape LNG market developments. For the time being, LNG orders that had been intended for China are being redirected to Europe.

Though supply to Asia has fallen considerably from high levels recorded just months ago, LNG demand typically increases in China, Japan and South Korea during summer.

 

EU headed for joint energy supply plan, challenges faced

The EU appears headed towards adopting a strategy for joint supply of natural gas, LNG and hydrogen, along the lines of a policy implemented for joint Covid-19 vaccination orders at the height of the pandemic, to combat skyrocketing energy prices, a draft prepared ahead of tomorrow’s summit, bringing together the EU’s 27 leaders, has indicated.

Governments of Europe’s south, hit harder by the energy crisis, and European consumers across the continent are anticipating measures that can help contain sharply increased gas, electricity and oil prices.

The joint supply plan’s implementation would come as a bold initiative by the EU, taking steps to greatly reduce its reliance on Russian gas, but various obstacles will need to be overcome.

Joint energy orders will be far trickier for the EU to execute than the mass orders it had placed with pharmaceutical companies for Covid-19 vaccinations back in June, 2020, as the former are commodities traded in fluctuating markets.

LNG suppliers such as the USA, Qatar and Algeria would have to redirect to Europe quantities usually shipped to Asian markets at highly profitable prices. Also, the reaction of China, America’s number one buyer of LNG, remains unknown.

The joint-supply strategy would be combined with the establishment of an energy safety reserve, as the European Commission has ordered EU member states to fill underground gas storage (UGS) facilities to 90 percent of their capacities by November 1, in preparation for next winter.

This would resolve energy sufficiency concerns but currently elevated prices are an issue. Also, many European UGS facilities have, until now, been managed by Russia’s Gazprom. It remains unclear if the Russian gas giant would be legally obliged to abandon these facilities.

The joint-supply strategy has been on the negotiating table since last year but held back by disagreements.

 

 

LNG tankers reroute for Europe as prices soar on continent

Natural gas prices in Europe, well over price levels in Asia, are prompting LNG tankers to reroute mid-voyage and head for Europe as the gas supply crunch on the continent worsens.

Buyers in Asian countries have outbid Europeans for LNG shipments for much of the year, but with storage now full across Asia, uncommitted cargoes from the Atlantic basin that were heading for Asia are being turned round by their owners and sent to Europe to cash in on soaring prices and demand.

The ships carrying liquefied natural gas to Europe include the first Australian LNG tanker headed for the continent in a decade.

American LNG exports are expected to rise significantly in 2022, surpassing quantities exported by Qatar and Australia.

According to US agency EIA, the Energy Information Administration, American LNG exports will rise to 11.5 billion cubic feet annually in 2022, 22 percent of projected global demand.

The US is expected to maintain the leadership in LNG exports until at least 2025, when Qatar is scheduled to launch an extension of its North Field gas deposit.

According to Reuters, 13 percent of American LNG exports in 2021 went to South Korea, 13 percent to China and 10 percent to Japan.

Three new gas liquefaction plants are planned to be launched in the US in 2022, by Cheniere Energy, Venture Global, and Tellurian.

 

More energy price hikes feared as Europe searches for solution

Another round of record-breaking energy price increases throughout the continent could be looming. Europe is primarily placing its hopes on an increase of Russian gas supply, which would greatly ease the ongoing price ascent, but, for the time being, energy prices are continuing to rise at unfathomable rates.

Under the currently alarming conditions, shaped by an unfavorable combination of international market trends, including main supplier Russia’s subdued gas supply to Europe, Dutch TTF hub futures for November contracts are set to once again reach levels of 160 euros per MWh. This would skyrocket wholesale electricity prices to 350 euros per MWh, a 70 percent increase on the current record level of 204 euros per MWh and 300 percent higher than a year ago.

Russia has cut back on its gas supply to Europe as a means of pressuring the EU for approval of its Nord Stream 2 gas pipeline, running through the North Sea to Germany. The project is opposed by some EU members as they would lose significant sums in transit revenues.

The EU has been left without a Plan B and greatly dependent on Russian gas supply for a number of reasons, including a gas reserve drop in many countries due to the summer’s prolonged heatwave, as well as increased LNG demand in Asia.

In Greece, roughly 50 percent of the country’s electricity generation is produced by natural gas-fired power stations, meaning gas price levels directly impact electricity prices.

 

Factors pushing up gas prices, economic activity threatened

A combination of market conditions and structural matters has unbalanced natural gas markets throughout Europe, driving prices higher, which is severely impacting electricity prices.

Recovering economies following pandemic-induced flatness, combined with a policy applied by Russia, Europe’s main supplier, to significantly restrict gas outflow to the continent, has created energy crisis conditions.

In mid-August, Russian gas outflow through the Yamal pipeline, running across Russia, Belarus, Poland and Germany, has not exceeded 20 million cubic meters per day, following levels of as much as 49 million cubic meters per day just weeks earlier, still well under usual levels averaging 81 million cubic meters per day.

According to analysts, this reduction has been attributed to Gazprom’s preference to supply Russian gas through the Nord Stream 2 pipeline, bypassing Ukraine and Poland.

LNG supply to Europe has also fallen in recent times as Asian countries appear more willing to pay higher prices.

In addition, prices are also being impacted by EU climate-change policies designed to limit the use of fossil fuels, lignite as well carbon emissions, all of which has greatly increased demand for natural gas, not only in Europe, but Asia and the US, too, pushing up prices to levels of 48 euros per MWh in recent days.

Natural gas shortages have driven wholesale electricity prices higher. In Germany, for example, wholesale electricity prices have risen by 60 percent over the past year. In Spain, the government has reduced energy consumption taxes in an attempt to subdue the wave of price rises.

The situation in the energy market is extremely worrying as it affects economic activity and is placing millions of households at risk of finding themselves in energy poverty.

PPC bond issue, ESG-linked, attracts top international funds

Some of the world’s biggest investors are among the foreign institutional investors who participated in power utility PPC’s recent bond issue as well as a supplementary issue staged yesterday, through which the corporation raised a grand total of 775 million euros.

Participants included US fund Blackrock, managing capital worth nearly 8 trillion dollars, fellow American fund Fidelity, whose portfolio is worth 440 billion dollars, the UK’s Apollo, managing 455 billion dollars, and France’s Pictet, with an investment portfolio worth 689 billion dollars.

The turnout for PPC’s bond issues was dominated by real-money investors, or institutional investors handling enormous amounts of cash reserves for long-term investments in companies with solid prospects. Their clients are chiefly retirement funds as well as corporations looking to the future.

Information made available until now on PPC’s bond issues indicates that 70 percent of subscribers were from abroad and 30 percent domestic. Among the foreign investors, half are institutional and real-economy investors, many of these cross-Atlantic.

US and European investors participated in the issues with shares of close to 50 percent each, while investors from Australia and Asia represented about 5 percent of subscriptions.

PPC’s initial bond issue raised 650 million euros at a borrowing rate of 3.875 percent, while yesterday’s follow-up issue raised an additional 125 million euros at 3.67 percent.

Bond issues linked with ESG (Environmental, Social and Governance) terms, as was the case with PPC’s two issues, are in high demand, internationally.

Through its issues, five-year bonds maturing in 2026, PPC has committed to a 40 percent reduction of CO2 emissions, from 23.1 million tons in 2019 to 13.9 million tons by 2022. If this target is not achieved, 50 basis points will be added to the yield.

PPC expects major LNG tender turnout for 2.7 million MWh

Gas suppliers are expected to turn up in numbers for a power utility PPC tender expiring today with offers to provide three LNG shipments needed by the utility between March and May. PPC plans to purchase a total of 2.66 million MWh through this tender.

Between nine and ten gas suppliers, including major Greek and foreign LNG players, will submit offers, PPC has been informed, according to energypress sources.

Besides leading Greek gas traders, the procedure is expected to attract companies such as Rosneft, Eni Trading, Gunvor, Glencore, Shell, Cheniere and Tellurian.

All participants were required to sign Master Sale Agreements, committing them to their offers without any revisions.

PPC wants a first LNG shipment of 900,000 MWh on March 24, a second delivery of 815,000 MWh on April 21 and a third of 950,000 MWh on May 20.

Today’s tender confirms a change of strategy by PPC, searching markets around the world, from Asia to Qatar and the USA to Russia, for low-priced LNG.

The continual drop in LNG prices promises major cost savings for a company the size of PPC, requiring 1.35 bcm per year.