Rystad: Global gas markets bearish short-term amid volatility

After a volatile week for global gas markets, the near-term sentiment suggests that limited upward price movements may be possible considering European storage levels and Russian gas flows, according to Rystad Energy analysis.

During the holiday season, European gas markets experienced volatility with the Title Transfer Facility (TTF) price collapsing to $22/MMbtu following a dramatic holiday selloff. Sticking with the theme of volatility, it has bounced back to around $30/MMbtu.

The rebound is primarily due to weather forecasts that suggest European temperatures will trend at normal levels in the coming weeks, a downward revision to prior expectations of warmer than average weather and a bullish signal for the TTF, said Wei Xiong, senior analyst at Rystad. Making matters worse, the Germany-Poland section of the Yamal-Europe pipeline has been operating in net reverse mode for 16 days straight.

Nevertheless, robust LNG imports into Europe, estimated to be around 7.3 million tonnes in December 2021, have partially offset the rapid depletion of European storage, at least for the time being.

The ongoing geopolitical strife between Russia and Ukraine creates an overhang on Nord Stream 2, creating the potential for continued weak flows from Russia into Western Europe through much of 2022, and by extension, the potential for continued elevated prices, Xiong said.

In the US, the Henry Hub is back to sub $4/MMbtu, with storage marginally above average for this time of year. Weather forecasts are trending warmer than usual, but some volatility is expected as sporadic cold snaps may raise gas demand for heating, with some states having already experienced deep freezes and power outages earlier in the week.

In Asia, temperatures are expected to trend at or above normal in the coming weeks. Barring any unexpected shift, Asian buyers should be able to sail past peak winter without a repeat of last year’s fiasco, Xiong said.

LNG and coal inventories in most countries are trending high, and demand is still tepid. However, LNG supply reliability remains a challenge, with Prelude FLNG expected to be out of action for a substantial portion of 2022. Buyers may look to bring forward deliveries scheduled for later in the year.