Rystad Energy: Gas and LNG prices set to rise

March 18, 2022

Global consumers are shunning Russian gas and LNG in response to the continuing war in Ukraine, states Kaushal Ramesh, Senior Analyst at Rystad Energy. Consequently, prices have been pushed higher as short-term energy security and reliability take precedence over energy transition prioritise.

In line with the increasing market panic, the TTF began the day testing to €200/MWh level (US$67/million Btu) threshold, though at the time of writing prices had calmed somewhat to US$54/million Btu according to the company.

Despite the rising anti-Russian gas sentiment, Ramesh explains that day on day flows from Russia are largely unchanged.

Export infrastructure through Ukraine remains intact, though airstrikes have damaged some city gas infrastructure near Kharkiv.

Fundamental drivers have by now taken a back seat in driving prices.

Ramesh explains that Norwegian gas exports are stable at approximately 347 million m3pd, giving the market one less thing to worry about.

LNG import figures are concerning, however, with regas utilisation (30-day moving average) in the UK having dropped from 81% in early February to approximately 54% at the time of writing. Lithuania has banned Russian LNG from its terminals, and similar measures are under consideration in other EU countries. Lithuania had imported 0.32 million t from Russia in 2021, making up 26.4% of its 1.2 million t LNG import, Ramesh explains.

Despite that being said, the arbitrage signal for marginal cargoes in the Atlantic is heavily slanted to Europe, Ramesh writes, as Asian buyers may be unwilling to replicate the price surge on the TTF beyond a notional US$50/million Btu.

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For Europe, prices materially above this level may trigger further industrial demand destruction, and it is unclear how much momentum the bullish sentiment has left.

Storage levels are on track to end the winter season at around 23% of notional capacity, higher than the 20.5% of capacity represented by the five-year minimum. However, this is at risk if the winter extends uncharacteristically, which appears somewhat likely.

With traders pre-empting further sanctions on Russia, they seem to be hesitant to committing to purchases of Russian LNG cargos, Ramesh states.

In the latest indication of the invasion having upended energy transition efforts in Western Europe, Germany has set aside US$1.7 billion to purchase LNG from outside Russia as part of its energy supply diversification plans, indicating that countries may prioritise energy security over emissions concerns in the near term.

Published by Abi Larkin.

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