High prices and volatility hit European gas markets

MADRID (ICIS)–The return of proper cold winter weather to Europe coupled with tight LNG supply pushed both continental hub and spot LNG prices to record highs.

The market is braced for price volatility over the coming weeks, with much depending on revisions to weather forecasts.

The Dutch TTF front-month contract registered one of its largest ever day-on-day jumps on 12 January as it rose by $1.47/MMBtu compared to its previous settlement to close at $9.43/MMBtu, or €26.46/MWh.

Low temperatures and supply shortages have particularly impacted Spain as the country witnessed the arrival of storm Filomena, which brought snowfalls not seen in various parts of the country for decades.

The already-limited LNG and vessel availability in the Atlantic basin made it impossible for Spanish imports to react to the extreme weather conditions and the situation was worsened with technical issues also reducing pipeline flows from Algeria on 6-7 January.

February ‘21 on the Spanish PVB hub gained $3.45/MMBtu session on session on 7 January to settle at $11.66/MMBtu.

In line with massive hub gains, spot LNG prices in Europe also moved to multi-year highs, although spot liquidity was concentrated in Asia, where below-average temperatures pushed spot LNG prices to all-time highs.

Gas prices at European hubs then corrected down on the back of expectations of milder temperatures for week three.

ICIS LNG spot price assessments were lifted to a small premium to the TTF.

Potential cargo cancellations from the US for March loading could also affect prices.

“I think activity in Europe will be quiet until February, then let’s see the [potential] cancellations from the US for March loading”, a Europe-based LNG trader said.

The deadline for cancellation notification for contractual offtakers of US exporter Cheniere is 20 January.

The trader source said that vessels loaded in January to discharge in Asia in February may not be ready to pick up a cargo in early March.

This could force some companies to cancel free-on-board cargoes from the US for loading during the first half of March, in order to take advantage of high February price in Asia.

LNG STORAGE STOCKS FALL

LNG stocks across the main importing countries in Europe dropped in the week to 13 January due to sluggish cargo arrivals and the rapid demand jump as a result of colder-than-average temperatures.

In Spain, LNG storage fullness fell from 51% on 1 January to 35% on 7 January.

Stocks then fell to 34% by 13 January.

LNG sendout fell from 95 million cubic metres (mcm)/day) on 7 January to 42mcm/day on 10 January as lower Algerian pipe gas flow rates recovered.

But sendout jumped again to 71mcm/day on 13 January as Algerian flows decreased.

Due to the low LNG stocks and continued supply uncertainty, Spanish grid operator Enagas cancelled two of the three LNG reloads that were scheduled for January.

At the same time, French LNG storage fullness fell by just 1% from 7 January to 48% by 13 January.

Over this period only one cargo was delivered to France, according to LNG Edge, while sendout rates were little changed.

Qatari LNG remained absence from the UK supply mix.

Total LNG sendout across Europe dropped from 1.16 billion cubic metres (bcm) between 31 December and 6 January to 1.12bcm between 7 and 13 January, illustrating the pressure on terminal stocks at a time of high demand.