The volatility in European fuel costs in latest days has highlighted a conundrum for merchants: whether or not the vitality disaster continues to be acute sufficient to justify importing further seaborne liquefied pure fuel cargoes in the course of the low-demand summer season months.
The value of the European fuel benchmark Title Switch Facility (TTF) rose as a lot as 20 per cent to €36 per megawatt hour on Tuesday, extending a run that started final week when it rallied for the primary week in 10.
TTF has fallen more than 90 per cent because the peak of the vitality disaster from an all-time excessive above €340/MwH final summer season as Europe refilled its shops and decreased its reliance on fuel from Russia.
However the costs have been jolted by forecasts of hotter climate and provide outages prolonged at key fields in Norway, and merchants are starting to stress over the EU’s fuel provides regardless of its storage being unusually excessive for this time of yr.
Whereas the EU is on observe to satisfy its goal that its fuel shops are 90 per cent full in November, merchants fear that short-term calls for might dent the plan.
They embody a sizzling summer season drawing on extra fuel for cooling, a pick-up in Asian demand, and extra provide disruptions to the remaining Russian pipeline fuel flows. Whereas Russia used to make up 90 per cent of Europe’s provides, the bloc nonetheless wants LNG in winter months to cowl the shortfall.
“Everybody is aware of behind their heads that as quickly as this fuel begins being consumed and if the cargoes maintain going to Asia, we’re again to the scenario two years in the past” when there was world competitors for LNG, one fuel dealer stated.
A major a part of the surge in costs final yr was as a result of patrons wanted to cost Asian rivals out of the market. In early June, the market had appeared to point Europe had enough gas, at the least for the second. TTF fell to a two-year low, ranges final seen earlier than Russia began squeezing Europe’s pipeline fuel provides forward of its invasion of Ukraine.
That was on the again of the EU’s fuel storage services — a key think about assembly winter demand — already being almost 70 per cent full, some 20 per cent above the earlier five-year common for the time of yr.
Low value works as a disincentive for merchants to ship seaborne LNG to Europe and search for different markets for bigger revenue margins. Historically, that has been to Asian nations resembling Japan, China and South Korea, which earlier than Europe’s vitality disaster was the premium marketplace for the super-chilled gasoline.
“The market is finely balanced for the time being,” stated Natasha Fielding, head of European fuel pricing at Argus Media. “It’s a guessing sport as as to if Europe wants to show down LNG imports for the summer season” or whether or not there will probably be a major sufficient discount in pipeline flows to the area, she stated.
Whereas Asian LNG demand has been subdued to date this yr, “the bottom case is that north-east Asian patrons like Japan, China and South Korea will enhance shopping for exercise forward of the winter heating season”, stated Sam Reynolds, Asia LNG and fuel analysis lead on the Institute for Power Economics and Monetary Evaluation. “This might result in an uptick in world competitors for provides, with doubtlessly larger costs consequently.”
