Page 4 - GLNG Week 33 2021

GLNG COMMENTARY GLNG
Fears emerge over European winter gas crunch
Warnings are emerging that LNG imports may not be enough to prevent Europe from experiencing a gas supply crunch this winter
PERFORMANCE
WHAT:
LNG imports may not be enough to hold off a European winter gas supply crunch.
WHY:
Inventories are low, while European gas prices
are volatile, and there are concerns about the impact of extreme winter temperatures.
WHAT NEXT:
The imminent start up
of Nord Stream 2 could help ease the crunch, but initial volumes will also not be enough.
EUROPE is facing a natural gas supply crunch this winter, and warnings are emerging that LNG imports may not be enough to ease the situation. This comes as European gas inventories have fallen to their lowest level in over 10 years. Both gas pipeline flows from Russia and LNG imports have been comparatively low, while European gas prices have been volatile.
This combination of circumstances is leading to concerns that if the coming winter brings with it extreme temperatures, Europe will strug- gle to meet spiking demand.
Less gas
Gas volumes arriving in Europe are depressed for several reasons. Russia has reduced flows via Ukraine as the two countries have remained at odds. Separately, a fire at a condensate processing plant operated by Russia’s Gazprom earlier this month disrupted shipments via the Yamal-Eu- rope pipeline. Gazprom said this week that it was overwhelmed by high gas demand both at home and abroad.
This high demand is also evident in Asia, where buyers have been willing to pay more for gas. This has resulted in LNG spot cargoes heading to Asia ahead of Europe. LNG supplies to Europe fell in July to their lowest level in three years for that month, according to Bloomberg, and August stands to see even lower levels.
Indeed, six cargoes are set to be exported from storage in Spain to Asia as traders pursue higher prices.
The situation is also being exacerbated by dis- ruptions to upstream operations in Europe and beyond. Norway, Europe’s largest gas producer, has had its output affected by maintenance that was pushed back from last year because of the coronavirus (COVID-19) pandemic. And else- where in Europe, production is declining as more and more countries turn their backs on new exploration on climate change concerns.
Various LNG terminals around the world have also been underperforming, or, in Nor- way’s case, not operating at all, with its Ham- merfest LNG terminal shut until 2022 following extensive damage from a fire.
Warnings
This set of circumstances is leading to concerns that Europe could be in for a difficult winter, especially if temperatures drop below freezing, which would drive up gas demand.
“Europe needs to refill storage, but with the current fight for cargoes, it seems like the market will be very tight unless pipeline flows increase,” Bloomberg quoted Flex LNG’s CEO, Oystein Kalleklev, as saying. “We need to pre- pare for a very volatile winter depending on winter weather.”
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w w w . N E W S B A S E . c o m Week 33 20•August•2021