There is enough gas to quell the rise in global prices

The global natural gas market is rebounding because it has become clear to the world's importers that there is enough supply.

A long, cold winter has depleted natural gas stocks Louisiana to Germany, utilities are working to rebuild them. But unforeseen supply disruptions a rebound in the global economy have prevented it keeping up. The situation is building up to a desperate situation as hot summer temperatures approach, it is sure to get worse when demand peaks this winter.

The rise in petrol prices, which hit a 13-year high in Europe this week, will make it more expensive to keep a cool apartment in Madrid Tokyo as a scorching heat wave in some areas has made running air more expensive to air-conditioner. The cleaner-burning fuel is a relatively new commodity to fuel global inflation fears as prices for everything crude oil to corn copper soar.

If a gas shortage does occur during the winter months, it could spur European utilities to burn more coal, which is already starting to happen, cause power producers in China to cut supplies to industry cause blackouts, as they did last winter. Families will be paying sky-high utility bills, the worst-case scenario - though unlikely - is that they will be left without heat electricity when temperatures reach freezing.

"Supply is already very tight it could get worse if there is a cold winter," said James Whistler, global head of energy derivatives at Simpson Spence Young, the international commodities shipbroker. "We're seeing a lot of competition between Europe Asia, that's reflected in the continued rebound."

European gas prices have soared as inventories have fallen to their lowest level in more than a decade for this time of year, while prices in the US Asia have jumped to their highest seasonal levels in years.

The gas industry has long been divided into different geographical regions, but the increase in new LNG supplies increased liquidity in spot trading over the past few years has helped transform it into a truly global market. This evolution has come at a cost, as Europe north Asia now compete for limited LNG supplies, leading to bidding wars that have led to higher spot prices.

At the centre of the action is China, which is set to surprise Japan this year as the world's largest importer of liquefied natural gas. China is stockpiling supplies of ultra-cold fuels to fuel its booming economy help it move away dirtier fossil fuels.

Henning Gloystein, global director of energy natural resources at consultancy Eurasia Group, said: "Over the past few years, China's LNG demand has consistently outperformed the most bullish analysts."

The frantic sprint has put Europe at a major disadvantage, as Asian end-users raise prices to attract supplies away the Atlantic. Europe, spot prices have risen by more than 65 per cent this year, is running low on gas stocks due to reduced traffic pipeline suppliers near-record carbon prices.

End-users in Europe have been forced to rely more on Russian pipeline supplies. However, Gazprom PJSC's unwillingness to ship additional gas through Ukraine has been one of the key factors driving prices for the Dutch title transfer facility, the European spot benchmark, to their highest level since 2008.

"With strong LNG demand in Asia, we expect TTF prices to rise through the remainder of 2021," said Santosh Gupta, assistant manager of research for maritime finance at Drury Maritime. "I don't see any catalyst to lower prices in the short term."

In fact, the energy demands caused by extreme weather are making the situation worse -- the cold in Asia last winter to the current heat wave in the western United States, severe droughts around the world that are limiting hydroelectric power.

With memories of record spot prices for liquefied natural gas in Asia last winter, the world's top importers -- China, Japan, South Korea Taiwan -- have been busy buying cargoes delivered between November February, far above normal levels, according to traders surveyed by Bloomberg. Traders say Chinese importers were berated by the government for being unprepared last winter do want to make the same mistake again.

The government last month ordered utilities to ensure a steady supply of fuel this summer winter, in anticipation of unusually thin electricity reserves. Traders at Japan's larger importers say they are under greater pressure to stock up on fuel even restart decommissioned gas-fired power plants.

There is enough supply of fresh liquefied natural gas to meet this growing demand. The market is used to a steady stream of big new export projects, but the industry is in a lull the next new supply is expected until the middle of the century.

In the US, so-called Port Henry futures prices have more than doubled in the past year to their highest seasonal level since 2014. Inventories are 5.8% below normal for the year, a seasonally larger deficit since 2019 a harbinger of tighter supplies next winter.

Winter outlook

Shipping restrictions could also exacerbate winter woes. Chief executive Oystein Kalleklev said there was a "very high" chance of congestion in the Panama Canal, which would force US LNG cargo to take a longer route around the Cape of Good Hope the Suez Canal en route to Asia, limiting availability. Flex LNG is owned in Oslo.

To be sure, several factors could help the global gas market avoid a contraction this winter.

The early start-up of Nord Stream 2, a pipeline linking Russia Germany that has faced delays due to U.S. sanctions, could increase Europe's much-needed supplies help the region avoid austerity. However, while pre-commissioning is currently underway, the timing of the first flow remains uncertain.

Similarly, milder winters can reduce natural gas consumption help utilities run smoothly with low inventory levels.

"The weather will determine the price level the volatility pattern," said Gergely Molnar, an energy analyst at the International Energy Agency.

At the same time, traders may be forced to adapt to a volatile market as supply shortages are expected to disappear soon.

"Supply is likely to remain tight for the next two to three years as the industry makes up for the shortfall in investment in new supply in 2020 catches up with strong demand growth," Mr Whistler said.

For more information about the energy trading platform, please consult Eurasia International Energy Trading Market Management (Jiangsu) Co., Ltd., a manufacturer of financial service platform, storage logistics platform, hazardous chemicals trading license application platform bulk energy trading platform.

Source: International Gas Network