Europe Enters Winter With Its Lowest Gas Inventory of the 2020s

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Asian spot LNG is trading above $30 per million British thermal units and Europe is entering winter with its lowest gas inventory of the 2020s, yet Rystad Energy stops short of…

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Asian spot LNG is trading above $30 per million British thermal units and Europe is entering winter with its lowest gas inventory of the 2020s, yet Rystad Energy stops short of predicting a further rally. In its winter LNG outlook, published this week, the consultancy lays out as many ways for prices to fall as to rise and tells buyers to plan for a wide range of outcomes instead of one base case.

EU storage sites were 71.6% full in Gas Infrastructure Europe’s Nov. 11 update, with Germany at 58%, and that is well under the five-year average for the start of the heating season. The International Energy Agency modeled a cold winter combined with continued disruption in the Strait of Hormuz and found that EU storage could fall below 10% of working capacity by the end of March, S&P Global reported. A late cold snap would land when withdrawal rates, which slow as sites empty, are least able to respond.

Rystad says Europe will have to pay up to keep US cargoes from being pulled toward Asia, where the loss of Middle Eastern supply has buyers chasing the same Atlantic LNG. Asia is a less eager bidder than the price suggests, though. Rystad expects a mild winter in Northeast Asia, where LNG at $30 discourages gas burning and boosts coal use. Weather alone may matter less than it sounds. Bernstein calculated that a super El Niño would cut Japan’s winter heating demand by 19% but its LNG consumption by only 2%.

Price does more of the work. Bloomberg reported Monday that cheap domestic supply is curbing Chinese spot buying, with the national average LNG price near $22, almost $10 below the Japan/Korea Marker.

In the US, the Energy Information Administration’s Nov. 10 outlook has Henry Hub averaging $2.87 from November through March, 16% below last month’s forecast, with export terminals running near full capacity.

October…

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