October 25, 2022

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EU Gas Prices Moderate as EU Debates Options

European gas prices have been bumping along at their lowest levels for quite some time, but traders are betting that the mix of factors pushing prices lower might not last as winter drags on and the EU struggles to reach agreement on a gas price policy.

The day-ahead gas futures contract at the Dutch TTF hub closed at €40 per megawatt hour on Tuesday after touching a low of €25.40/MWh on Monday — its lowest level since May 2021.

Benchmark EU gas prices have been pushed lower by high gas storage levels, oversupplied LNG import terminals, forecasts of mild temperatures in the weeks ahead and industrial demand destruction.

The month-ahead TTF gas futures contract closed below €100/MWh ($28.9 per million Btu) on Monday.

That was the first time that prices had dipped below that level since June — before Russian gas giant Gazprom made deep cuts in gas flows to Germany via the Nord Stream pipeline.

The month-ahead TTF contract remained below €100/MWh for most of Tuesday's trading session.

However, traders appear to see the current relatively low prices as temporary relief before prices head higher again during the winter months.

Futures prices for the winter months carry a much bigger risk premium, reflecting uncertainty around winter supplies and questions about the willingness of EU consumers to heed calls to use less gas.

Gas for delivery in December has been trading around €130/MWh, with the price rising to about €140/MWh for February delivery. Nevertheless, prices for monthly contracts remain well below the €350 MW/h seen as recently as August.

Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence

Ending the Putin Premium?

The current dip in prices has occurred despite Russia reducing its gas exports to Europe to just below 80 million cubic meters per day.

Nord Stream flows ground to a complete halt after it was damaged by an explosion in late September, with the remaining Russian exports to Europe shipped via Ukraine and Turkey.

Some EU diplomats argue that the reduction in flows from Russia has actually contributed to the fall in prices because it has made it more difficult for Moscow to influence Europe's gas markets by manipulating its export volumes.

Russia has warned that it would cut off gas exports completely if the EU were to implement a proposed cap on gas prices, and it has urged other gas-exporting countries to oppose the initiative which it says threatens all market participants.

Addressing the Gas Exporting Countries Forum (GECF) in Cairo this week, Energy Minister Nikolai Shulginov said a price cap would further destabilize energy markets and hurt both producer and consumer nations.

He reiterated Moscow's view that the current energy crisis in Europe was caused by the EU's "illegal, unilateral restrictions" against Russia.

Shulginov's concerns were echoed in a statement issued after the GECF's ministerial meeting in Cairo, which took aim at attempts to "impose politically-driven price caps."

The GECF statement warned that "such artificial intervention in market functioning can only aggravate market tightness, discourage investment, and be detrimental to producers and consumers alike."

However, one EU source told Energy Intelligence that countries should move ahead with some form of price cap, because Russia is likely to cut off all gas supplies to Europe at some point anyway.

The source argued that the EU would benefit by removing the current risk premium embedded in gas and power prices because of uncertainty around Russian export volumes.

Tricky Price Cap Math

The recent decline in European gas prices comes as EU energy ministers huddle in Luxembourg for another effort to try to hammer out an agreement on how to manage natural gas and power prices.

A recent summit meeting of the EU's national leaders had asked the ministers to refine a pair of proposals to intervene in gas markets.

One proposal would create a "dynamic price corridor" at the TTF hub — essentially capping prices should they surge to unsustainable levels.

Another would limit the price of natural gas used in power generation, a move that would have the effect of capping prices for electricity generated by any means.

On Tuesday EU ministers were presented with a third option that focuses on decoupling power markets from gas prices.

The latter scheme would see the 27-nation bloc adopt a "contracts for difference" system to set prices for new "inframarginal" power production — such as electricity supplied by wind and solar facilities or by nuclear plants.

Operators would submit bids to sell power from their project, with the contract awarded to the bidder offering the cheapest electrons.

A paper circulating within the EU claims that this option could be "implemented very swiftly and easily for new capacity," but would not be applied to existing production.

The EU is still proposing a broad revenue cap for low-cost electricity production and a "solidarity contribution" from fossil fuel companies. These are expected to generate some €140 billion to be used to blunt the impact of high energy costs on consumers.

In a surprising twist, however, the EU's price cap plans would be rendered largely moot if prices hold at their current lows — something that the member states would obviously welcome if prices were to remain relatively low throughout the winter.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Staff Reports

Singapore Doubling Down on Hydrogen  

Singapore will be doubling down on hydrogen, the country’s Deputy Prime Minister Lawrence Wong told delegates Tuesday at the opening of the annual Singapore International Energy Week. Singapore views the emerging new energy segment both as a means of decarbonization and as an economic opportunity for the finance, trade and logistical sectors along the whole value chain.

Unveiling Singapore’s national hydrogen strategy, Wong said the island nation — already an established LNG trading hub for the Asia-Pacific region — will “take steps to prepare for hydrogen deployment domestically and work with international partners to build a hydrogen supply chain in Asia.”

For starters, Singapore would allocate an additional S$129 million (US$90 million) in research and development funding to its Low Carbon Energy Research program, under which hydrogen will be a “key focal area.” A significant amount of the fresh funding will be directed towards projects that can help Singapore “import, handle, and utilize hydrogen and its carriers safely and at scale,” said Wong. The new funding is on top of the S$55 million that the program had already disbursed in October 2021.

Ammonia Supply Chain

Singapore’s strategy involves experimenting with the use of advanced hydrogen technologies that are “on the cusp of commercial success.”

The country will “kickstart” its hydrogen efforts by launching an Expression of Interest for a “small-scale commercial project utilizing low-carbon ammonia for power generation,” Wong revealed.

Such a project will help to assess the viability of ammonia — as both a hydrogen carrier and as a direct fuel — and Singapore could develop regulations and an ecosystem to support it, Wong noted, adding that more details will be announced by the Energy Market Authority in the coming months.

Through the project, Singapore hopes to also “catalyze” the development of ammonia supply chains for other applications, for example as a low-carbon fuel for meeting marine and bunkering needs.

The project could potentially allow Singapore access to electricity generated from low-carbon hydrogen from as early as 2027, Wong added.

Potential Threat to Gas

Currently, about 95% of Singapore's electricity is generated using natural gas.

But Wong is envisaging a potentially big shift toward hydrogen in the future: “If technology continues to advance, we foresee that hydrogen can supply up to half of our power needs by 2050,” alongside domestic renewable energy sources and imported electricity.

In the industrial sector, hydrogen can also be used as feedstock in semiconductor plants and petrochemical processes.

The government will play an active role in bringing industry players and the research community together, to improve translation from research towards “real-world applications,” in order to drive down costs and accelerate the technical viability and commercial scalability of hydrogen, Wong pledged.

Hiking Carbon Tax

Singapore also plans to hike its carbon tax – currently set at S$5 per ton of carbon dioxide equivalent — by more than 10 times to S$50-S$80 (US$35-$55) per ton by 2030, Wong said.

The move would help to “sharpen the impetus of shifting to cleaner alternatives” as well as prompt businesses to “internalize the cost of emissions.”

The carbon tax in Singapore is applied broadly, covering about 80% of the country’s emissions.

Acknowledging that such a move would lead to higher costs for consumers and businesses alike during a time of high inflation, Wong emphasized that Singapore’s mindset is not to reduce taxation, but to “provide targeted relief” to businesses and consumers so that “we have the right price signals for the economy as a whole.”

Relief measures for businesses include enhanced support schemes to boost energy efficiency. For households facing an increase in electricity bills, the government would provide rebates through utility vouchers to users in the “lower and middle-income groups.”

Upgrading Climate Commitment

Singapore will also upgrade its nationally determined contribution to fight climate change at the coming 27th Conference of the Parties.

The island nation had previously committed to peak emissions in 2030 at 65 million tons of CO2 equivalent.

It will now “aim to peak our emissions earlier” and also reduce its 2030 emissions level to around 60 million tons, said Wong.

“This five million ton improvement is significant. It is equivalent to reducing our current transport emissions by two-thirds,” he added.
Kim Feng Wong, Singapore

Executives Say US Gas Industry's Global Role Requires Policy Support

The US gas industry could play a major role in solving global energy security and climate challenges, but policymakers must first accept that gas will play a long-term role in the global energy mix, industry executives said Tuesday.

“The transition, I think we’re learning, is about efficiency,” said William Jordan, executive vice president and general counsel of the US’ largest gas producer EQT during remarks at the North American Gas Forum in Washington DC. “I just want America to put more gas on the water, let the markets readjust. We don’t have to be saying that America’s gas has to go to China to address their coal [emissions]. We get more gas in the world, the first thing that will come off is coal, without a doubt.”

Earlier this month, EQT joined a coalition called the Partnership to Address Global Emissions, which is targeting a quadrupling of US LNG capacity by 2030.

Political Will

Though the developing world may not prioritize addressing the climate crisis with the same urgency as developed countries, cost may sway them toward cleaner sources of energy, and that includes gas.

“We have the resources to help the world transition to a lower carbon [economy], but we don’t have the political will,” said Tellurian CEO Octavio Simoes. “We don’t have the support. We don’t have the comfort that we need to [assure] investors that it’s a good investment to make.”

Simoes recently met with executives from India in an effort to revive his long-stalled Driftwood LNG export project.

Simoes said rhetoric from US politicians and policymakers raises the perception of risk around US projects, steering both would-be investors and customers toward alternatives.

“You listen to [US Energy] Secretary Granholm say, ‘well if the US price of natural gas gets too high, we’re going to block exports’, and you listen to [Former US Secretary of State] John Kerry say, ‘in two years gas will have a Kodak moment, and disappear from the mix.’ Well, who’s going to invest in a 20-year project in order to get gas to Europe? So what are the Europeans doing? We’re seeing that they’re going to Qatar.”
Everett Wheeler, Washington


In Brief

Australia Joins Global Methane Pledge

Australia, currently the world's number one LNG exporter, has joined the Global Methane Pledge (GMP) ahead of COP27 to be held in Egypt next month.

Signatories to the GMP pledge to reduce global methane emissions by at least 30% (from 2020 levels) by 2030 and agree to more robust reporting standards.

Australia is the world’s 11th emitter of methane, Australia’s Minister for Climate Change and Energy Chris Bowen said in a statement adding that methane accounts for 24% of Australia’s emissions.

Around 29% comes from resources, 47% from agriculture and 10% from waste, Bowen added.

To achieve its target, Australia will focus on research and development, investment, collaboration and partnerships.

“Our approach will not involve new taxes, will not involve livestock reduction or arbitrary domestic targets,” Bowen said.

The government is also planning to invest up to A$3 billion (US$1.91 billion) from a $15 billion National Reconstruction Fund to support agricultural methane reduction and low emissions technology.

“With Australia’s focus on emissions reduction, signing the Pledge is a positive and important step for our country and the world,” Samantha McCulloch, the chief executive of the Australian Petroleum Production and Exploration Association said in a statement.

“While the largest sources of methane emissions in Australia are agriculture, coal, land use, and waste, our industry continues to take action to measure, monitor and reduce its methane emissions,” she added.
Marc Roussot, Singapore

European Spot LNG Dips

Northeast Asian Spot LNG prices remained stable at $30 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot prices in Southwest Europe dropped by $4.85 week on week to $27.55/MMBtu, falling below target levels for EU policymakers.

A shift in buyer interest to the second half of December and the first quarter of 2023 has allowed spot LNG prices in Northeast Asia to hold steady this week. Meanwhile, a strong drop in Dutch TTF
prices due to an abundance of LNG and low gas consumption helped push European spot LNG prices down.

Healthy inventory levels in Asia for December coupled with higher-than-normal temperatures forecast until mid-November have widened the price contango between cargoes in November and December, with strong buying interest reported for January deliveries.

Meanwhile in Southwest Europe, storage tanks at LNG import terminals remain saturated, with close to a dozen laden vessels still floating in the Gulf of Cadiz and the Alboran Sea. The full terminals, coupled with recently introduced unloading restrictions by grid operator Enagas, have already resulted in a cargo cancellation on Oct. 21. With Spanish terminals unable to receive additional spot volumes, the discount to the benchmark TTF hub price was heard to be unchanged week on week.

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22020406080Energy Intelligence

Yousra Samaha, Dubai and Daniel Stemler


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India25.2926.1324.9626.2023.9623.8127.4522.3427.2125.1323.3422.5723.48
Sodegaura, Japan24.2427.7227.7428.1123.7614.0926.6120.4826.2829.0021.9619.4124.45
Zeebrugge, Belgium5.531.460.271.774.245.093.480.283.150.424.461.924.70
Huelva, Spain26.7822.6221.4022.9325.3724.6924.6621.1824.3421.5525.4222.5525.44
Isle of Grain, UK2.23-1.82-2.99-1.531.021.780.50-2.97-0.13-2.841.17-1.341.40
Everett, US2.28-2.01-1.12-1.681.450.880.010.43-0.23-3.102.87----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct24. Oct10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia30.0030.00-0.48--
SW Europe27.5527.55-4.95--
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.415.615.205.75
NBP, UK (futures)+0.2321.2521.0223.12
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF2.3411.689.3421.17
Zeebrugge (Belgium)0.356.606.251.91
German NCG2.7913.1810.3816.88
NBP (UK)-1.263.444.714.59
US Markets
US Spot Prices
Sabine Pass, Louisiana0.385.194.815.90
Corpus Christi, Texas0.345.104.765.57
Cove Point, Maryland0.344.203.865.75
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.415.615.205.75
Second Mth0.416.175.756.24
Third Mth0.396.436.036.49
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence