Asian LNG diverted to Europe after bullish energy price surge
German imports of Russian gas at the Mallnow point, where the Yamal pipeline beaches, have practically stopped since 18 December, dropping from 20 million cubic metres (mcm) per day on average this month prior to that date.
The ICIS TTF front month surged to a record high of more than €180/MWh on Tuesday 21 December, before falling back slightly on Wednesday.
Lower Russian deliveries have triggered a surge in storage withdrawals with shippers using around 780mcm from sites in Europe on Tuesday, the highest volume of the winter to date.
European storage is now only around 52% full with increasing risk being priced into contracts for first quarter delivery next year.
Relatively high demand has also lifted the spot market, as has the decline in Russian flows.
European prices are highly attractive for flexible cargoes with planned deliveries already stacking up for early January 2022 and reports of limited slot availability at terminals.
The ICIS TTF front month price assessment has moved to a record premium to the ICIS East Asia LNG Index (EAX), signalling further diversions to Europe are likely.
US LNG into Europe in December is on course to reach the highest volume since April and could reach an all-time high.
By 22 December 1.7m tonnes of US LNG had arrived into Europe, according to ICIS LNG Edge, with another 10 cargoes due by the end of the month.
Contractual LNG requirements from Asian buyers in the first quarter of 2022, especially for Qatari supply, means some volume will head away from Europe.
A total of 4.6m tonnes of LNG has come to Europe in December and the forward schedule of deliveries indicates the monthly total could come close to 7m tonnes.
This would be the highest since May and up from 4.9m tonnes in December 2020.
Short term and near curve prices on the major electricity markets also rocketed on Tuesday driven by gas alongside tight power market fundamentals.
The below average temperature outlook combined with low wind boosted prices. By Wednesday, the outlook was for milder weather in the latter halves of both week 51 and 52, but confidence in this outlook was low, according to forecaster MetDesk.
Prompt market gains were most pronounced on Week 52 and Week 1 contracts, particularly in France where the Week 1 peakload reached an eye-watering €1,094.70/MWh.
Pre-existing supply issues exacerbated the reaction of the power markets to the surge in gas prices and changes to the weather outlook.
The French nuclear fleet has been crippled by the unplanned outage of units amounting to 6GW, announced earlier this month. This is expected to have the most impact during the first quarter of 2022.
This is likely to mean France relies on power imports, while it would typically be a net exporter to the UK and Germany.
With the added lack of wind generation – a key driver for both the German and UK markets – margins are likely to be tightened by this reversal in flows with France.
It is also unlikely that the Nordics will offer either market much relief. In the Nordics, temperatures, wind and precipitation are forecast below norms for the next three weeks, while Norwegian hydro stocks in week 49 were 15% below the 2016-20 average.
Front-month delivery hydrogen prices have also reached record highs as the power and gas rallies have increased import costs.
Unabated steam methane reforming (SMR), low-carbon SMR and low-carbon autothermal reforming (ATR) use gas as their primary feedstock, while the electrolysis process relies on power.
On Tuesday hydrogen prices reached new highs, with Dutch unabated SMR, low-carbon ATR and SMR all exceeding €10/kg H2 on a front-month basis for the first time in ICIS three-year price history.
Dutch front-month baseload electrolytic hydrogen supplied via the wholesale market rose to €25.31/kg H2 on the same date, with the price for January even higher at €28.31/kg H2.
Front-month electrolytic hydrogen cost around €4/kg H2 at the beginning of the year, while natural-gas derived hydrogen, both unabated and low-carbon, was around €1.70-2.30/kg H2.
Source: ICIS, by Ben Samuel