European gas prices climbed to new highs in September amid tightening market fundamentals, continued geopolitical tensions and growing concerns over low storage levels.
In Europe, TTF prices more than doubled compared to last year, averaging at $25.5/mmbtu – their highest monthly level since Dec22. There are several factors at play: with Hormuz closed, Europe’s LNG imports continued to decline and fell by almost 7% yoy.
This lower LNG availability coincided with subdued Norwegian and Russian piped gas deliveries amid annual maintenance works on key gas pipelines. And while supply is depressed, gas-fired power generation in the European Union grew by a staggering 15% yoy amid subdued renewables power output. In addition, storage levels are standing 18% (or 16 bcm) below their 5y average, adding more to the overall market stress.
In Asia, JKM followed a similar trajectory, with prices rising to an average of over $27/mmbtu. Notably, the spread between Asian and European prices started to narrow, indicating a more fierce competition for flexible LNG cargoes. And China continued to provide essential downward flex to the market, with the country’s LNG imports down by almost 7%, primarily due to lower spot procurements.
But China’s LNG appetite could return: the National Energy Administration recently urged domestic gas companies to speed up their storage filling so that the country enters the heating season fully stocked.
In the US, Henry Hub prices remained at just below $3/mmbtu, as record breaking gas production continues to provide downward pressure on gas prices. In the Permian, gas output reached recently a staggering 23.5 bcf/d (660 mcm/d) as new pipeline capacity (Hugh Brinson and Gulf Coast Express) helps to bring these valuable molecules to the market.
Further north, AECO in British Columbia retains its position as the world’s cheapest gas, with prices averaging at just above $1/mmbtu. And this is still a massive recovery from last year, when the Canadian benchmark was trading well-below $1/mmbtu…
What is your view? How will gas prices evolve through the heating season? Are we all set for a wild volatility ride? The fundamentals seem to pointing out towards the bulls… but could the bears make comeback?
Source: Greg Molnar
