BAKU, Azerbaijan, Jan.13
By Leman Zeynalova – Trend:
Europe requires more supply to renew its storage to absorb any more shocks, Trend reports with reference to the Oxford Institute of Energy Studies (OIES).
“Europe is the world’s balancing market for gas and has been able to absorb most of the shocks to the global gas market. However, just like the annual service on an old car which requires the shock absorbers to be renewed, Europe requires more supply to renew its storage to absorb any more shocks,” reads the latest OIES report.
The institute analysts expect that LNG demand outside Europe will continue to rise but LNG supply is increasing as more US plants come on stream and the multiple supply issues in 2021 begin to unwind. “However, for supply to Europe to materially increase will require increased flows from Russia, either along the Yamal Europe route or along Nordstream 2, following approval,” the report says.
OIES notes that the surging gas prices in Europe in 2021 came in three phases.
“In Q1 the cold northern hemisphere winter weather and supply constraints from European production tightened the market by some 203 MMcm/d or some 18 Bcm of gas overall. However, the impact on TTF prices was muted since European storage was in good shape and could relatively easily accommodate the increased withdrawals. The ‘surplus’ of gas in European storage at the beginning of 2021 effectively reduced the tightness of the global market by more than half, reducing the impact on prices. The continuation of strong Asian, as well as Central and South American, demand for LNG in the summer, however, combined with continued supply constraints for LNG and European production, meant that Europe was unable to restock at anywhere near a normal rate thus putting upward pressure on TTF prices,” said the report.
The analysts point out that the effective market tightening was some 140 MMcm/d – lower than in Q1 – but with storage at low levels, following the removal of ‘surplus’ stock, the September TTF settlement price reached over $15/MMBtu.
“The real shock to the market, however, came in Q4 when gas flows from Russia along the Yamal Europe route dropped sharply to less than a third of normal levels. The market was still in a delicate balance, even without the reduction in flows along this route, with growing LNG demand outside Europe, continuing LNG supply and European production constraints, although there was a slight easing in both. The lower Yamal Europe flows, however, tipped the market over the edge and rather than TTF prices being in the $15 to $20 per MMBtu range – still very high by historical standards – they rose to $30 or above and averaged almost $27/MMBtu for the whole of Q4,” reads the OIES report.
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