November 17, 2022

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EU Proposes Price Cap for Dutch TTF Gas Futures

The European Commission has set out a detailed proposal to cap wholesale natural gas prices in an informal discussion document sent to EU governments ahead of a meeting of the bloc's energy ministers on Nov. 24.

The leaked document — a "non-paper" in EU jargon — proposes a temporary price ceiling for the month-ahead Dutch TTF gas futures contract, which serves as a reference price for gas and LNG in Europe.

It says the price ceiling would serve as "an effective instrument against excessive episodes of extraordinarily high prices."

But it emphasizes that it should only be used when gas prices reach "exceptional levels" compared with other regions of the world, to ensure that it does not make it more difficult for Europe to import the gas and LNG it needs.

EU member states have been butting heads over the introduction of a cap on natural gas prices for several months, with at least 15 of the 27 EU member states expressing support for some kind of cap.

Supporters of a price cap argue that it would make it more difficult for Russia to drive up European gas prices. But opponents fear that a price cap could impair Europe's ability to compete for LNG supplies in the global marketplace.

Experts have criticized this latest proposal and have generally expressed doubts about the effectiveness of intervention to prevent surges in European gas prices, such as the one that occurred earlier this year.

Correction Mechanism

Brussels is considering a "static" price ceiling with "dynamic elements," according to the non-paper.

A temporary "market correction mechanism" would be triggered if prices reach a certain level — set in advance to avoid lengthy discussions — if a surge in European prices appeared to be out of step with other gas markets around the world.

The proposal would not extend to gas traded "over the counter" (OTC) — as opposed to gas traded on exchanges — because those deals "cannot be effectively monitored."

Furthermore, exclusion of OTC trading from the mechanism would allow it to serve as a "safety valve" that could enhance security of supply, the document argues.

The commission has suggested that the peak prices of August 2022 could be used for the purpose of "guidance."

At that time the month-ahead TTF September gas contract traded at €350 per megawatt hour ($105.80 per million Btu) on the ICE exchange, amid tight gas supplies and fears that Gazprom could cut off supplies of Russian gas to Europe.

The current month-ahead contract for December gas recently dipped below €100/MWh in response to mild weather and a surplus of LNG coming into Europe. It was trading above €110/MWh late on Thursday.

The mechanism would include monthly monitoring to determine whether a price cap was still needed. And the commission would lift the cap immediately if it was found to be hurting security of supply or gas flows between EU member states.

Monitoring would be conducted by the commission with the support of the EU's Agency for the Cooperation of Energy Regulators, the European Central Bank and the European Securities and Markets Authority.

"Compliance with EU demand reduction targets should also be taken into account when assessing the effects of the mechanism," the non-paper said.

Efficacy Questioned

Professor Massimo Nicolazzi, an energy economist at the University of Turin, told Energy Intelligence that the new proposal is "ineffective and useless" because it omits a previously proposed price floor and does not cover the unregulated OTC market.

In the first nine months of 2022, OTC trading accounted for around 42% of all gas traded in Continental Europe, according to commodities trading platform Trayport. The OTC share of all European gas trading was 49% in 2021 and 65% in 2020.

Nicolazzi said that taking the August 2022 price peak as a reference point for the proposed price ceiling was "grotesque," because it was not indicative of normal — nor abnormal — trading.

Asking TTF operator Gasunie to introduce a "circuit breaker" for prices at the hub would have been a "simple and effective" solution and could have been done earlier this year, he added.

The commission document also points to some potential drawbacks of the proposal, including an increase in OTC trading, which is "less transparent and implies greater risks of defaulting on obligations for the parties involved."

Mike Fulwood of the Oxford Institute of Energy Studies, speaking at the Energy Intelligence Forum last month, also expressed doubts about efforts to regulate European gas prices.

"The TTF market is totally unregulated, so how you cap an unregulated price is a fundamental issue," Fulwood said. "[The gas] is traded on exchanges, where the financial process is regulated, but you can't cap the price."

"Then there's the huge OTC market, which is between a willing buyer and seller, so I'm not sure how you actually cap the price," he added.

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

Jaime Concha, Copenhagen

LNG Cargo Cancellations Continue in Spain as Terminals Filled

Continued high LNG storage inventories at Spanish terminals are understood to have caused another two cargo delivery cancellations at the country's import facilities.

The 155,000 cubic meters Cool Rider was scheduled to unload its cargo at the Huelva terminal on Nov. 24, while the 145,914 cubic meters LNG River Orashi was expected to discharge in Bilbao on Nov. 25, a Spanish market source with knowledge on the matter told Energy Intelligence last week.

The former carries LNG from Nigeria, which Brazil’s Petrobras was delivering for German utility RWE into Spain, while the latter is transporting a cargo from Nigeria for Spanish utility Naturgy, Energy Intelligence understands.

However, on Nov. 17 the same source told Energy Intelligence that both deliveries have been cancelled.

The Cool Rider has been loitering around the Gulf of Cadiz for almost two weeks, while the LNG River Orashi is currently heading northwest in the Atlantic Ocean offshore Guinea, ship-tracking data by Kpler showed.

It was not immediately clear where the vessels will deliver their cargoes following the reported cancellations.

Continuing a Trend

These cancellations follow previous cargo diversions from Spanish terminals in recent weeks as the country deals with high inventory levels, which have been preventing import facilities to receive more LNG volumes.

Energy Intelligence reported earlier this month that at least another three cargoes had been diverted from Spain since last October.

The cargo discharge at the Huelva terminal by the 150,000 cubic meter Ob River was cancelled on Oct. 21. On Nov. 3, the cargo delivery by 165,000 cubic meter Energy Glory was also cancelled to the Cartagena terminal.

Meanwhile, Spanish utility Endesa is also understood to have diverted the Traiano Knutsen, with a cargo from the US Corpus Christi plant, from Spain’s Huelva terminal to the UK's South Hook facility earlier this month.

The situation is unlikely to improve in the coming weeks, with several laden vessels continuing to wait off the Spanish coasts to be able to unload their cargoes. Meanwhile, the high number of booked delivery slots at Spanish terminals suggests that the ample supply is expected to last for months.

There are 155 long-term slots that have already been booked by market participants for this winter, up by 21 slots compared to last winter, Spanish grid operator Enagas said in its Winter Outlook 2022-2023.

Daniel Stemler, Madrid


In Brief

US FERC Gives Nod to Commonwealth LNG Project

The US Federal Energy Regulatory Commission (FERC) on Thursday approved its first certificate for a major LNG project since 2020, voting unanimously to authorize the Commonwealth LNG facility in Cameron, Louisiana.

Developers of the 8.4 million tons per year liquefaction project have said they could make a final investment decision in mid-2023 pending a final nod from FERC.

It has been more than two years since the 3-2 Democratic majority commission certified a major LNG project, and Democratic Chairman Richard Glick reiterated his longstanding concerns that FERC does not conduct full accounting of the climate impacts of such projects.

Commonwealth has already signed up Australian Woodside to a 20-year deal for 2.5 million tons of LNG from mid-2026, firming up a heads of agreement signed in January.

Bridget DiCosmo, Washington

Pertamina to Make a Bid for a Stake in Masela Block

Pertamina is expected to submit a nonbinding offer this month for a stake in the Masela gas block in Indonesia.

The block has been attracting a growing number of investors in recent weeks, with Malaysia’s state-owned Petronas now showing interest, Indonesia’s upstream regulator SKK Migas told Energy Intelligence. Exxon Mobil and local firm MedcoEnergi have also expressed interest.

Masela — operated by Japan's Inpex — holds an estimated 10.7 Tcf of gas, which is due to feed the long-delayed 9.5 million ton/yr Abadi LNG project.

Shell opened a data room back in 2020 with a view to selling its 35% interest in the block. Inpex holds a 65% stake.

Shell is believed to have thrown in the towel on Abadi after the Indonesian government requested the conversion of a previously approved floating LNG project into a 9.5 million ton/yr onshore LNG plant in 2016.
Marc Roussot, Singapore

Gazprom Wins €300 Million in Ruble Payment Case

The Stockholm arbitration court has ruled that Finland’s Gasum is not obliged to pay for Russian gas in rubles but must pay Gazprom more than €300 million ($310 million) in gas debt, the two companies said in separate statements this week.

Russia's sole pipeline gas exporter Gazprom earlier this year cut off supplies to six European buyers, including Gasum, for rejecting Moscow's new payment scheme introduced in the first months of the war in Ukraine in response to Western financial sanctions.

Gazprom's supply cuts, not limited to these six buyers, have been a key reason behind the major drop in Russian pipeline gas exports to Europe, which the continent seeks to offset by gas-saving measures and bigger imports of LNG.

The arbitration issued an award Monday ordering Gazprom and Gasum to continue their bilateral contract negotiations to resolve the situation around Moscow’s new gas payment scheme, introduced for what the Kremlin calls “unfriendly” countries in April.

The scheme involves conversion of euros and dollars to rubles and the opening of special accounts in a Russian bank. Gasum and five other European buyers refused to pay for the gas supplied in April under the new scheme. Most other buyers agreed to, however, as it allowed them to keep paying in their currencies, with conversion to rubles done by the Russian bank.

Gasum said the arbitration confirmed it was not obliged to pay in rubles nor through the new payment procedure imposed by Moscow.

The arbitration also confirmed that Gazprom had a right to stop gas supplies to Gasum in May due to nonpayment for the already supplied gas, the Russian exporter said. The arbitration obliged Gasum to pay a €300 million award to Gazprom for the supplied gas and for take-or-pay volumes, including fines.

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

Staff Reports


Data Snapshot

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia24.0021.89-0.46-2.11
SW Europe20.1024.412.624.31
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.176.376.206.24
NBP, UK (futures)-0.2231.7832.0131.61
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.6130.3730.9826.72
Zeebrugge (Belgium)--24.61--11.58
German NCG-0.6828.2628.9325.39
NBP (UK)2.6112.349.7311.01
US Markets
US Spot Prices
Sabine Pass, Louisiana0.456.205.754.59
Corpus Christi, Texas0.385.615.234.13
Cove Point, Maryland-0.057.067.112.75
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.176.376.206.24
Second Mth0.146.746.616.61
Third Mth0.146.496.356.35
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaDec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '220255075100125Energy Intelligence

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India17.2618.0716.9318.1415.9515.8119.3614.3819.1217.1015.3514.6015.48
Sodegaura, Japan16.2619.6619.6820.0415.806.3418.5812.5918.2520.9114.0411.5416.47
Zeebrugge, Belgium30.1125.7924.5226.1228.7429.6527.9224.5727.5824.7028.9726.2829.22
Huelva, Spain23.6519.5418.3419.8522.2621.5821.5618.1221.2518.4922.3119.4822.33
Isle of Grain, UK11.167.045.837.349.9310.709.395.878.766.0010.087.5210.31
Everett, US4.640.351.240.683.823.240.012.792.13-0.745.23----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct14. Nov10203040506070Energy Intelligence