The escalating war in Ukraine and the prospect of increased energy sanctions on Russia are pushing gas prices to record highs. The Dutch Title Transfer Facility (TTF) contract hit $115/MMbtu the morning of Mar. 7.
“At these prices, we are likely approaching the limits of affordability in Western Europe. The market will be looking for indications from the scheduled third round of negotiations between Russia and Ukraine today, though expectations of a breakthrough remain low. Unfortunately, gas fundamentals offer little insight into this wartime volatility,” said Kaushal Ramesh, senior analyst at Rystad Energy.
Currently, Russian pipeline flows to Europe remain stable, including flows through Ukraine, which stand at around 81 million cu m/d.
Flows out of Norway are marginally down at around 343 million cu m/d, due to an unplanned outage at Kollsnes.
LNG imports into Western Europe totaled 1.15 million tonnes so far in March, compared to 1.36 million tonnes in the first week of February.
“The TTF-Asia LNG spread has never been more negative, which should tilt all marginal Atlantic origin cargoes to Europe,” said Ramesh said.
“Temperature forecasts have been revised upwards, and wind generation output is expected to strengthen in the coming weeks, both of which will, thankfully, reduce gas demand.”
Meantime, the overall pessimistic macro sentiment has weighed heavily on the European Union Emissions Trading System (EU ETS), which has declined amid concerns that the stagflationary impact of high fuel prices could destroy demand.
In Asia, weather-driven demand is unlikely in the short term as temperatures are forecast to be well above normal. However, the market is watching the developments at the LNG sector’s latest outage at the second train of Malaysia LNG Satu, reported last week.
In South Korea, Korea Hydro & Nuclear Power (KHNP) reduced output at the Hanul nuclear power plant due to a nearby wildfire, which likely increased the call on gas-fired generation as stringent coal capacity restrictions are in effect through March, Ramesh said.