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LNG demand in Asia and Europe is beginning to rise ahead of the peak winter season amid a calmer market compared to last year’s chaos and record-high prices. But neither Europe nor Asia should be complacent about winter gas supply as winter weather, delivery disruptions, and geopolitical tensions could upend the LNG market once again and send prices soaring.
Last week, spot LNG prices in Asia for November delivery slumped by 10% week-on-week to $13.5 per million British thermal units (MMBtu) amid soft demand and warm weather, industry sources told Reuters. Europe’s benchmark natural gas prices were also down amid high inventories at storage facilities in the EU.
Ahead of the 2023/2024 winter, gas storage sites in the EU were 97% full as of October 9, according to data from Gas Infrastructure Europe. Europe hit its target to have storage 90% full by November 1 months in advance.
But this week, the gas market felt the heat of sudden supply disruptions and European and UK benchmark prices surged. The front-month Dutch TTF Natural Gas Futures, the benchmark for Europe’s gas trading, soared by 15% on Monday and by another 12% on Tuesday after a leak shut down an offshore pipeline between Finland and Estonia.
One year after the Nord Stream pipeline blasts, the specter of sabotage on critical energy infrastructure in Europe is back.
“Based on information from the Finnish Border Guard, Gasgrid Finland has given its expert assessment according to which the damage was not caused by the normal gas transmission process,” gas grid operator Gasgrid Finland said on Tuesday.
“It is likely that the damage to both the gas pipeline and the data cable is caused by external activity. What specifically caused the damage is not yet known,” Finnish President Sauli Niinisto said in a statement on Tuesday.
Finland joined NATO earlier this year after its neighbor to the east, Russia, invaded Ukraine in February 2022.
Security of gas deliveries to Europe comes into focus just as supply from the eastern Mediterranean could be in jeopardy after the Hamas attack on Israel and the possibility of further escalating tensions in the Middle East and eastern Mediterranean.
Adding to supply concerns is the renewed threat of strikes at Chevron’s two LNG export terminals in Australia, Gorgon and Wheatstone, which account for around 7% of global LNG supply, although analysts don’t expect any supply disruptions for now.
While gas markets digest the ‘black-swan’ events, the typical patterns in the market have started to manifest themselves.
LNG cargo shipments to Asia and Europe are estimated to have accelerated this month as the northern hemisphere prepares for the winter, according to Kpler vessel tracking data cited by Reuters columnist Clyde Russell.
Price-sensitive buyers such as India and Pakistan – which stayed away from the record-high prices at the end of last year – are back on the spot market for cargoes, too.
Last year, LNG supply to Europe was greatly facilitated by weak demand in China and prohibitively high prices for the other more price-sensitive Asian buyers.
This may not repeat this year. Intensified competition from Asia could leave Europe in an even more vulnerable position regarding supply for the 2023/2024 winter by driving prices higher and attracting more LNG cargoes to Asia than EU buyers would have liked.
Another major unknown for the LNG market this winter is how cold it will be. Last winter was milder than usual in Europe, which helped the governments and gas grid operators avoid gas shortages and rationing.
This may not be the case this winter, and supply could be strained if temperatures are colder than normal, even if demand is lower due to savings and weak industrial consumption.
Despite high levels of gas stocks and reduced gas consumption and imports, Europe’s biggest economy, Germany, is not out of the woods in terms of gas shortages, German industry and government have been warning for months.
“The risk of price volatility, particularly in the event of a cold winter, is cause for concern,” the International Energy Agency (IEA) said in a report on Tuesday.
“Europe’s gas storage sites entered the winter heating season at 96% capacity. However, this is no guarantee of stable prices throughout the season, particularly in the event of exceptionally cold weather,” the IEA noted.
