Page 6 - Euroil Week 12 2020

EurOil COMMENTARY EurOil
total usage to 89.2 bcm. Germany, Italy, the UK, France, the Netherlands and Spain will take the biggest hits to consumption levels, according to Rystad. Germany, the biggest gas consumer in Europe, will use 15.4 bcm of gas in March and April, compared with the 16.1 bcm Rystad had previously forecast.
“During the last few days the likelihood of seeing further lockdowns across Europe has increased, making this scenario more likely,” Rystad’s head of gas and power markets, Carlos Torres Diaz, said in a statement. Also, Italy is about to end its second week of lockdown and it doesn’t seem to be coming to an end yet.”
Power consumption will be down 7% during the lockdown, Rystad said, resulting in a similar drop in gas demand in this sector in the period. Industrial users will cut consumption by 5%, commercial users by 20% and residential users by 2%.
The consultancy is yet to account for any potential demand losses as a result of lockdowns in May onwards, though there is a significant downside risk.
“With TTF front-month prices currently trading below $3 per mmBtu, we see limited downside risk, given that at a lower price, export- ers of US spot LNG cargoes would not be cov- ering their short-run marginal costs and would rather divert cargoes to other regions, or adjust down production,” Torres Diaz said.
However, there is a risk that prices could plunge to $2.3 per mmBtu while the market rebalances itself, according to Rystad. In this environment, odds are slimmer of there being a rebound in prices until next winter. Asian buy- ers should help soak up additional LNG supplies, as the current price remains competitive versus
coal. This in turn could help prop prices up at around the $3 level.
Over the longer term, Fitch Ratings expects European prices to rebound gradually to $5.5 per 1,000 cubic feet ($5.5 per mmBtu) within three to five years.
“We assume the Dutch TTF and UK NBP gas prices in Europe will gradually recover to $5.5 per 1,000 cubic feet over three to five years, broadly corresponding to the full-cycle costs of US producers, including shipping to Europe and capex,” the ratings agency said in a note.
But gas prices will remain low in the mean- time over the next two years, according to Fitch, due to weak demand for LNG in China, high vol- umes of gas in European storage and the com- missioning of new LNG capacity, albeit at slower pace than in 2016-2019.
Suppliers’ response
Gazprom is yet to scale back shipments in response to the virus. The gas producer saw a more than 40% year-on-year collapse in its ship- ments to the continent in January because of over-storage and warm weather. But its exports have actually been stable this month, in spite of the lockdowns.
According to Russia’s Kommersant, Russian exports via Ukraine averaged 150mn cubic metres per day in March 1-19, up from 135.3 mcm per day in February. Shipments via the Nord Stream pipeline averaged 189.5 mcm per year, up 8.6% compared to December.
The company is likely to cut supplies as lockdowns intensify, however, and it could even receive forces majeures from its buyers, as could other major suppliers such as Norway’s Equinor.™
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w w w . N E W S B A S E . c o m Week 12 26•March•2020