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Global LNG oversupply to pressure gas prices – analysts

(Montel) A looming LNG oversupply globally amid low demand in the Pacific and Atlantic basins and an increase in floating storage is set to pressure gas prices in both regions, analysts told Montel.

European LNG imports hit their lowest in 11 months in July at 11.8bcm, according to Kpler, amid healthy pipeline supply, high underground storage and lower seasonal gas demand. This kept the continent’s prices at a discount to Asian LNG equivalents. 

Asia also saw LNG imports edge down in July year on year and they were 8% lower than July 2021 at 30bcm. This came amid sluggish economic activity in China and and high stocks and more nuclear generation in Japan, said analysts.

“So, the market could well see some oversupply in late summer unless there are any unexpected outages, such as from hurricanes affecting the US Gulf,” said Icis LNG analyst Alex Froley. 

“That may push TTF prices down in the short term if the weather remains mild, although in the pipeline market, Norwegian maintenance will step back up later in the summer.”

European gas prices in the Dutch TTF hub have mostly traded in the EUR 25-35 band since July, tracking Norwegian pipelines flows and underground storage filling. 

Asian LNG prices in the JKM have tracked TTF to trade at a premium, with prices for September delivery hovering around USD 11/MMbtu (EUR 34/MWh).

Floating storage

European underground storage is 87% full, one percentage point higher week on week, and still on track to be filled as early as September, long before the 1 November target.

As storage levels rise, TTF prices should fall – widening a more than EUR 15 contango with winter prices – and encouraging floating storage use, analysts said. 

“With the contango that’s emerging, it’s a self-fulfilling prophecy,” said Ira Joseph, senior research scholar at the Center on Global Energy Policy at Columbia University in New York. “The deeper the contango, the more incentive to float.”

An LNG vessel with a 170,000mcm cargo would fetch USD 13m in extra revenue by floating between August and November, said Claudio Steuer, director of SyEnergy Consulting.

“Opportunistic buying”

“If the LNG ship is under a long-term charter, it is lucrative,” he said, but on a spot basis, with LNG freight shipping rates above USD 100,000/day, “the transaction starts to look marginal”.

For Asia to absorb the extra LNG this month and next, JKM prices would need to fall but keep a premium on European prices, analysts said. 

“Asia might manage some more opportunistic buying if spot LNG was to fall back towards USD 6-8/MMbtu, levels which should still support exports from the US given much lower Henry Hub prices,” said Froley.

Updates published story to correct European underground storage from 84% to 87% full.