LNG glut in China suddenly?
By Wolf Richter for WOLF STREET.
The price of Dutch front-month TTF Natural Gas Futures – a benchmark for north-west Europe – plunged 15% today to €54.85 per megawatt-hour (MWh) and is now down 84% since the summer of 2022’s crazy spike. Price is now back to where it was first in early September 2021 (data via Investing.com):
What sent the European natural gas market into a 15% sell-off today were reports that Chinese importers of LNG were trying to divert February and March LNG shipments from China to Europe as they sat on large LNG stockpiles amid falling prices in China.
There were fears that the reopening of China’s economy would further weigh on global LNG markets. Or was that just hype again?
In 2022 and 2023, several factors converged to avert what was seen as a potentially dire energy crisis:
- Increasing supply of LNG from USA and other places around the world.
- Rapid deployment of Floating Storage and Regasification Units (FSRU) in Europe to outsource this LNG supply, also in Germany.
- Pipeline natural gas from Norway to the rest of Europe grew 4% year over year in 2022 to 113 billion cubic meters (Bcm), according to S&P Global. Norway is now Europe’s largest supplier. Norwegian gas deliveries to Germany reached historic highs.
- A large-scale effort by households and companies, especially in Germany, to reduce natural gas consumption (heating, hot water), also motivated by the sharp rise in the price of natural gas.
- A shift in power generation from natural gas to other energy sources, including coal, also motivated by sharp increases in natural gas prices by the summer of 2022.
- A warm winter.
All of this worked together to reduce demand for natural gas and increase supply to replace pipeline natural gas from Russia.
Natural gas storage facilities in Europe are in exceptionally good condition for this time of year. According to the GIE (Gas Infrastructure Europe), storage facilities in the European Union as a whole were 81.7% full on January 14th. Here is how the 916 terawatt hours (TWh) of natural gas in storage as of January 14th compares to levels at the same point in the year in previous years:
- 76% over 2022
- 32% over 2021
- 1% over 2020
- 30% over 2019
- 44% over 2018
Stock levels have varied from country to country but all have been in excellent shape, particularly in Germany which has managed to actually increase its stock levels in recent weeks during what would normally be exit time. As of January 14, per GIE:
- Germany: 90.5% full
- France: 79.7% full
- Italy: 79.3% full
- Spain: 93.6% full
- Netherlands: 75.8% full
- Poland: 95.6% full
- Sweden: 88.4% full
- Belgium: 88.6% full
- Austria: 87.3% full
- Denmark: 91.5% full
The pressure on LNG pricing has also eased. The price of the Japan Korea Marker (JKM) futures contract at $26.80 per million Btu is down 62% from the insane high on Aug 31, 2022 (data from Investing.com):
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it very much. Click on the beer and iced tea mug to learn how:
Would you like to be notified by email when WOLF STREET publishes a new article? Sign up here.
