March 2, 2023

WWW.ENERGYINTEL.COM

EU Must Continue to Cut Gas Demand

EU gas demand must remain 10% lower than the five-year average from April in order to balance Europe’s gas market this year, according to Dutch bank ING.

ING suggests continued demand reduction in Europe is needed as the EU is “still in deficit” as gas demand is outstripping available supply.

The bank said lower gas prices would move markets in the other direction. Lower gas prices would potentially reignite demand in Europe and would reduce supply in Europe by reviving the appetite of competing Asian buyers for spot LNG.

The front-month TTF contract is currently trading under €50 per megawatt hour, its lowest level since August 2021. Analysts have previously told Energy Intelligence that gas prices in Europe will need to be above €75-€80/MWh (or around $25 per million Btu) to ensure LNG supply to Europe and to keep a lid on demand.

The Dutch bank has revised its 2023 TTF forecast lower from €70/MWh to €57/MWh.

“Risks to our view include a stoppage of remaining Russian pipeline gas flow to Europe, a stronger-than-expected recovery in Chinese LNG demand (we are assuming a little over 10% growth year on year) and a stronger European demand response to the more recent weakness in prices,” ING said.

EU Demand Cuts

ING’s estimate comes days after EU energy ministers met in Stockholm to discuss how to prepare for next winter. Ahead of the meeting several EU officials suggested current mandated gas demand cuts — expiring at the end of this month — need to be extended.

State Secretary at Germany’s Federal Ministry for Economic Affairs and Climate Action, Sven Giegold, suggested deeper demand cuts may be necessary in order to ensure supply for next winter.

“Even if we managed this winter, this doesn’t mean that next winter will be fine as well. And therefore our success that we achieved with our gas saving targets has to be built upon with stronger targets than the current 15% for the next winter. So that we keep warm at more affordable prices for next winter,” Giegold said ahead of the meeting on Feb. 27.

Following Monday’s meeting, European Commissioner for Energy Kadri Simson said continuing demand cuts would be a “no regret option,” however she did not indicate the potential level of any future cuts.

Brimming Storage

The EU exceeded the 15% demand reduction target in the period August 2022 to January 2023, and the deeper cuts have helped keep Europe’s gas inventories brimming.

ING estimates that EU gas storage will exit winter 54% full, a level well above the five-year average of 34%. At 54% full, EU inventories will be holding approximately 58 billion cubic meters of gas and ING estimates that 36 Bcm of gas will be needed to hit the EU’s gas storage target of 90% full by Nov. 1.

In comparison, approximately 67 Bcm of gas was injected into storage last year.

Higher storage levels at the end of winter will mean the EU will need less LNG to hit the 90% target, and ING suggests there is a growing risk that storage could be full before next winter. The bank suggests this could lead to further price weakness in Q3.
Eric Thorp, London

Russian LNG Struggling in Asia

Russian LNG exports to the Asia-Pacific region have declined in 2023 despite the country's increased need for non-European markets in the wake of the Ukraine war.

Leading the way down during the first two months of 2023 was the Gazprom-controlled Sakhalin-2 upstream and LNG project in Russia’s Far East, according to sources with access to production data.

Sakhalin Energy produces gas from offshore fields in the Sea of Okhotsk and sends almost all the volumes to its 11 million-plus ton per year LNG plant on Sakhalin Island.

Sakhalin-2 operator, Sakhalin Energy LLC, produced 1.3 billion cubic meters of natural gas last month, down 15% from February 2022 and down 11% from January 2023, the sources said. In January-February, it produced 2.8 Bcm of gas, also down 15% on the year.

Russia’s total LNG exports to the Asia-Pacific decreased 1.4% on the year to 3.6 Bcm in February and slipped 5% to 7.3 Bcm in January-February, according to the sources (see table below).

Sakhalin Inflexion Point

The decrease in monthly gas and LNG production began last year and coincided with the operatorship change at Sakhalin.

Russia-registered Sakhalin Energy LLC replaced Bermuda-registered Sakhalin Energy Investment Co. as ordered by a presidential decree in late June 2022.

The move effectively squeezed supermajor Shell out of the project. Shell had been a 27.5% shareholder and 1 million ton/yr offtaker.

Lower production might also reflect Sakhalin Energy’s new upstream strategy, announced in late 2022, which focuses on “rational development” rather than “maximum recovery” with an aim to extend the life of its key, mature Lunskoye field.

However, Sakhalin-2 continues to operate well above its nameplate liquefaction capacity of 9.6 million tons per year. Last year it produced some 11.5 million tons, up 11% from 2021, when production was down due planned major summer maintenance.

Yamal Slips Too

Apart from Sakhalin-2, Russian LNG also comes to Asia from Novatek’s Yamal LNG plant in the Arctic, which also supplies Europe.

Yamal produced 2.6 Bcm of natural gas in February, up 1% on the year and a marginal 0.1% on the month. In the first two months of 2023, however, Yamal’s natural gas production fell 4% on the year to 5.2 Bcm, which is still a strong result considering that the plant operated well above capacity one year ago.

Yamal produces gas from the South Tambei field on Yamal Peninsula and apart from feeding the 20 million-plus ton per year LNG plant it only uses a small part of the gas for internal purposes.

Russia’s total natural gas production fell 12% on the year to 54.4 Bcm in February, reflecting a sharp drop in pipeline gas exports solely handled by Gazprom.

Natural Gas Production at Yamal LNG, Sakhalin-2
(MMcm)Feb'23Feb'22%Chg.Jan-Feb'23Jan-Feb'22%Chg.
Yamal LNG2,5942,5601.30%5,1695,390-4.11%
Sakhalin-21,3351,573-15.102,8263,331-15.17
Total3,9294,133-4.947,9958,721-8.33
Russia's LNG Exports to Asia-Pacific3,6153,666-1.39%7,2997,670-4.83%

Staff Reports

Pembina Eyes Cedar LNG FID

The developers of the proposed Cedar LNG export project in British Columbia (BC) expect to reach a final investment decision (FID) later this year.

Pembina Pipeline, which is partnered with the Haisla First Nation on the 3 million ton per year floating project, said last week it expects to take FID in the third quarter of 2023 despite permitting delays.

“We have heard from the BC government that the issuance of the environmental assessment approval is going to be delayed, but we're very optimistic that it will be approved,” Chief Legal and Sustainability Officer Janet Loduca told analysts last week.

“This is going to be one of the greenest LNG projects in the world. And I think the environmental assessment was very positive from that perspective. So we continue to be in discussions with the BC government, but we are optimistic that we will receive approval in the near term," she added.

The project would be powered with renewable electricity and built at an existing shipyard to reduce its impact to the environment. It is anticipated to come online in 2027.

Canadian developers are keen to capitalize on the West Coast’s proximity to Asia – a growing demand center for LNG – but also face challenges including high costs, green opposition and a lukewarm treatment from the government of Prime Minister Justin Trudeau.

While a number of projects have been proposed on Canada’s East and West Coasts over the years, only the Shell-led LNG Canada facility — which is in close proximity to Cedar LNG — has reached FID. The project’s first 14 million ton per year facility at Kitimat, BC is slated to be operational in 2025. A second, yet-to-be-sanctioned phase would double the size of the facility.

The LNG Canada consortium was in talks with the BC government last year to determine the path forward for the second phase. The government was seen pushing for the Phase 2 liquefaction trains to be electrified to cut its greenhouse gas footprint. The first phase is powered by natural gas.
Caroline Evans, Houston


In Brief

El Musel Terminal to Start Capacity Open Season

Enagas is gearing up for the operational start of the El Musel LNG terminal in Gijon, on Spain's northern coast, after a 10-year hibernation.

The Spanish gas grid and LNG terminal operator will launch an open season next week for capacity booking at the terminal, the company announced on Mar. 2.

The terminal is small — with two LNG storage tanks, each with 150,000 cubic meters of capacity — and only has the ability to unload, store and reload cargoes, but it is expected to help Europe manage an increasing influx of LNG cargoes.

The open season will begin on Mar. 6 with a non-binding first phase in which market participants can express interest in services at the terminal. In the binding second phase, market players will bid for capacity.

Last week, Spain’s National Markets and Competition Commission approved a temporary singular economic regime for the El Musel terminal, allowing it to be used as storage-only facility for cargo reloads.

The terminal is now waiting for the final ministerial approval, the Act of Commissioning by the Industry and Energy Area of the government delegation in the autonomous community of Asturias, as well as a municipal license from the city council of Gijon, before it can begin commercial operations.

Earlier this week, Enagas and LNG terminal operator Reganosa, owner of Spain’s Mugardos terminal, announced that the latter will acquire a 25% stake in the El Musel terminal for €95 million ($100.6 million), while in parallel Enagas buys the entire pipeline network of Reganosa in Spain's northwestern region of Galicia for €54 million ($57 million).
Daniel Stemler, Madrid


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India11.8412.2211.9112.2011.5611.4112.6011.1412.5311.9311.2911.0611.35
Sodegaura, Japan12.6613.8213.8413.9012.649.7413.5211.7413.4114.1912.0211.2712.77
Zeebrugge, Belgium14.1212.7312.4112.7913.6913.9913.3712.3813.2512.4113.8013.0213.88
Huelva, Spain12.5311.2010.8911.2512.0911.9411.8110.7911.7010.8912.1511.3312.16
Isle of Grain, UK14.2212.8312.5112.8813.8114.0913.5612.4813.3612.5113.9013.1213.98
Everett, US1.880.560.850.611.621.500.011.241.060.252.05----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback26. Sep10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec2. Jan16. Jan30. Jan13. Feb27. Feb1020304050Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia14.7014.900.070.20
SW Europe12.7013.16-0.240.46
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.052.772.812.31
NBP, UK (futures)-0.0714.2114.2815.18
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.2014.8815.0815.56
Zeebrugge (Belgium)--------
German NCG-0.3413.2113.5514.16
NBP (UK)-0.2415.0115.2515.28
US Markets
US Spot Prices
Sabine Pass, Louisiana0.082.672.592.17
Corpus Christi, Texas0.102.612.512.04
Cove Point, Maryland0.192.622.432.32
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.052.772.812.31
Second Mth-0.042.902.942.43
Third Mth-0.033.093.132.59
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaMar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '230255075100125Energy Intelligence