A rally in global natural gas prices cooled as traders eye the latest signs of volatility on the Russian-Ukrainian border, but searing heat and a possible spike in Asian demand are still lurking.
Several days after Ukrainian forces pushed into Russian territory and captured a key pipeline gas intake point in Sudzha, contract prices have slightly retreated or floated around the same levels in some cases.
“All eyes on the gas market remain on the situation in Southern Russia following the Ukrainian offensive earlier this month, which has led to fighting close to the important pipeline which transports Russian gas to Southern Europe,” analysts with energy trading firm Energi Danmark wrote in a note. “The market has for long feared that the pipeline could be damaged but for now, this has not happened yet.”
Flows of Russian gas were still crossing through Ukraine to Poland and Slovakia in limited quantities Monday, according to data from European Network of Transmission System Operators for Gas.
The Dutch Title Transfer Facility September contract inched up slightly to around $12.93/MMBtu Monday while the October contract hovered just over $13. European prices rose to the high $12 range last week and were on the brink of retreating when reports of Ukraine's incursion in Russia spiked prices and supply anxiety again.
Power prices in central and northern Europe have also been edging downward thanks to consistent rain over the past week boosting hydroelectric output. The weather is expected to trend dryer and cooler over the coming five days in Northwest Europe and over the Nordic countries, according to Maxar’s Weather Desk. Meanwhile, above average temperatures are expected around southern Europe and the Baltics.
Heat Builds In The East
Temperatures are forecast to rise to above average levels in Japan and South Korea over the week, adding potential upside to electricity and LNG demand. A heatwave has settled over Japan since mid-July, prompting meteorological and health authorities to issue several heat stroke warnings around the country, according to Japanese national broadcaster NHK.
State-owned Chinese firm Sinochem Corp. diverted a cargo from the Sabine Pass liquefied natural gas terminal previously intended for delivery to China this month to Osaka in mid-September, according to Kpler data. Korea Gas Corp. also diverted a cargo from Qatar intended for delivery in China to South Korea this week.
Scorching heat has driven power demand in South Korea to record levels since last week, according to Korea Power Exchange data.
While Asia still leads week/week LNG imports over Europe, slower economic activity in China and larger than average stockpiles in Japan and South Korea have reduced monthly import levels, according to Kpler data. Despite the heat this summer, LNG imports are down by almost 26 million metric tons (mmt) year/year in Japan and around 17 mmt in South Korea. Imports in China are down almost 27 mmt compared to the same period last year.
Monday opened with limited action for tenders as Gail India Ltd. searches for another two cargoes in October. While LNG imports are lower compared to the same period last year, according to Kpler, India’s share of gas in the energy mix has risen to 3% in response to massive increases in power demand.
In North America, Mexico’s first cargo of U.S. gas liquefied and exported from the country was floating outside Port Esquivel in Jamaica on Monday. The cargo aboard New Fortress Energy Inc.’s Energos Princess is expected to reach Pichilingue LNG in Baja California by Aug. 27 and may pass through the Panama Canal.
Feed gas flows to U.S. LNG terminals returned to over 12 Bcf/d on Monday and was expected to average 12.2 Bcf.d over the next seven days, according to Wood Mackenzie.
