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European gas jump shows fight for LNG supply is not over

The volatility in European gas prices in recent days has highlighted a conundrum for traders: whether the energy crisis is still acute enough to justify importing additional seaborne liquefied natural gas cargoes during the low-demand summer months.

The price of the European gas benchmark Title Transfer Facility (TTF) rose as much as 20 per cent to €36 per megawatt hour on Tuesday, extending a run that began last week when it rallied for the first week in 10.

TTF has fallen more than 90 per cent since the peak of the energy crisis from an all-time high above €340/MwH last summer as Europe refilled its stores and reduced its reliance on gas from Russia.

But the prices have been jolted by forecasts of hotter weather and supply outages extended at key fields in Norway, and traders are beginning to fret over the EU’s gas supplies despite its storage being unusually high for this time of year.

While the EU is on track to meet its target that its gas stores are 90 per cent full in November, traders worry that short-term demands could dent the plan.

They include a hot summer drawing on more gas for cooling, a pick-up in Asian demand, and more supply disruptions to the remaining Russian pipeline gas flows. While Russia used to make up 90 per cent of Europe’s supplies, the bloc still needs LNG in winter months to cover the shortfall.

“Everyone knows in the back of their heads that as soon as this gas starts being consumed and if the cargoes keep going to Asia, we are back to the situation two years ago” when there was global competition for LNG, one gas trader said.

A significant part of the surge in prices last year was because buyers needed to price Asian rivals out of the market. In early June, the market had seemed to indicate Europe had enough gas, at least for the moment. TTF fell to a two-year low, levels last seen before Russia started squeezing Europe’s pipeline gas supplies ahead of its invasion of Ukraine.

That was on the back of the EU’s gas storage facilities — a key factor in meeting winter demand — already being nearly 70 per cent full, some 20 per cent above the previous five-year average for the time of year.

Low price works as a disincentive for traders to send seaborne LNG to Europe and look for other markets for larger profit margins. Traditionally, that has been to Asian countries such as Japan, China and South Korea, which before Europe’s energy crisis was the premium market for the super-chilled fuel.

“The market is finely balanced at the moment,” said Natasha Fielding, head of European gas pricing at Argus Media. “It is a guessing game as to whether Europe needs to turn down LNG imports for the summer” or whether there will be a significant enough reduction in pipeline flows to the region, she said.

While Asian LNG demand has been subdued so far this year, “the base case is that north-east Asian buyers like Japan, China and South Korea will increase buying activity ahead of the winter heating season”, said Sam Reynolds, Asia LNG and gas research lead at the Institute for Energy Economics and Financial Analysis. “This could lead to an uptick in global competition for supplies, with potentially higher prices as a result.”

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