Liquefied Natural-Gas Prices Will Steam Up Again

"An uneasy truce between Europe and Russia over the supply of liquefied natural gas, or LNG, has cooled the market. But it would be unwise to treat modestly lower prices as anything other than a temporary respite.

LNG exporters like Cheniere and Tellurian will continue to benefit, while industrial and residential customers shouldn't expect much relief.

An explosion at one of the largest U.S. LNG export terminals last week sent European gas prices soaring again -- demonstrating the fragility of the market and the extent to which it remains exposed to any supply hiccup.

Europe's gas supplies have been under threat since sanctions upon Russia in February. While there still appears to be no immediate prospect of a complete halt to Russian supply, overall Russian flows to the region have fallen.

In total, eight Gazprom contracts in seven European Union countries have been terminated, according to data from IHS Markit. Those terminations have vaporized 70 million cubic meters per day of gas supply.

Moreover with Shanghai groping toward reopening and Asian countries stocking up for the winter, Asia is seeing a rebound in demand.

That is especially true since rising oil prices and cheaper LNG have made the supercooled fuel more attractive again. On a dollar per British thermal unit basis, Asian LNG prices and Brent oil have reconverged in recent months.

Many Asia-bound LNG cargoes were rerouted to Europe earlier this year when the EU was willing to pay a premium. But the spread between European and Asian prices in June has narrowed to about $1 per million British thermal units (MMBtu) from $5 in May, according to data provided by Wood Mackenzie.

Benchmark futures in Amsterdam have fallen to an average of about $24.59 per MMBtu in June from $40.78 per MMBtu in March.

Apart from a slightly more sanguine view on geopolitical risks compared with the start of the war, softer prices in Europe are probably also a result of warmer weather amid ample supply, some demand destruction among industrial gas users and an expected increase in coal burn.

Europe is on course to fill north of 85% of its gas storage before winter sets in, according to Wood Mackenzie. Last year, only around 75% of storage was full in the lead-up to winter, according to data from Gas Infrastructure Europe.

It is also important to note that while Russia is unlikely to completely cut off supplies to Europe and lose millions of dollars in revenue, the risk hasn't disappeared. According to Massimo Di Odoardo, vice president for gas and LNG research at Wood Mackenzie, the apparent calm in the market is extremely fragile: Any news that might suggest an upside in prices will get amplified in the coming months.

Europe has successfully stocked up. But Asia is waiting in the wings, to say nothing of rising oil prices and the unpredictable Russian President Vladimir Putin. Energy consumers should enjoy this respite while it lasts." [1]

 

The Lithuanian liquid gas barge is floating to no avail. The price of gas is set on the world market, our barge does not protect us from the crisis. And how much money was pumped out for it...

 

1. Liquefied Natural-Gas Prices Will Steam Up Again
Mandavia, Megha. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 14 June 2022: B.12.