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09 Aug 2021 | 12:04 UTC — Insight Blog
Featuring S&P Global Platts
Low gas stocks and supply constraints support prices in Europe and the US, while oil markets watch for Iran's return to the international market. Plus, estimates lowered for Russia's wheat crop, and Texas adds wind and battery storage to its generation resource.
What's happening? European gas prices remain at giddy heights above Eur40/MWh due to tight market conditions. Strong competition from Asia for LNG, Russian supply constraints first via Ukraine and now via Belarus, high carbon prices and—critically—very low gas storage stocks are all factors that have driven prices up. EU gas stocks are currently just 58% full, and concern is growing over whether storage sites will be filled sufficiently to see Europe through the next winter.
What's next? All eyes seem to be on Russia and whether volumes will be boosted via the Yamal corridor into Poland and Germany. Stocks are still filling relatively slowly, and given such high prices and Russia's reluctance to increase supply, it remains to be seen how full storages will get ahead of the next withdrawal season. The potential startup of the Nord Stream 2 pipeline as soon as October could be key, with Gazprom then potentially able to refill its own storages in Europe through the fourth quarter.
What's happening? Winter gas prices in the US Northeast market area continue to rally at a more-than-five-year high this month amid growing alarm in the forwards markets over lagging regional gas storage inventories and flat production from Appalachia. At Transco Zone 6 New York, the January calendar-month contract has climbed to more than $8/MMBtu recently, up from levels around $6.50 in early April. At Boston-area Algonquin city-gates, the peak-winter contract has climbed to the mid-$14s/MMBtu, gaining about $5.50, or 60% since the start of April, S&P Global Platts data shows.
What's next? As of early August, gas storage in the Northeast is estimated at 696 Bcf—about 54 Bcf, or 7%, below the prior five-year average and 129 Bcf, or almost 16%, behind the region's year-ago inventory level, data from S&P Global Platts Analytics shows. While a recent uptick in the pace of injections has narrowed the region's inventory deficit recently, the speed of this summer's build would need to accelerate to about 3.4 Bcf/d through early November to reach typical pre-winter inventory levels at over 1 Tcf. Based on current interregional and seasonal price spreads—which are incentivizing Appalachian gas to flow southbound to the US Gulf Coast—it's unlikely that market participants will manage to close the gap on this season's storage deficit.
What's happening? Hardliner Ebrahim Raisi has been inaugurated as Iran's new president, in the middle of heightened tensions in the Middle East, with a deadly July 29 tanker attack and a suspected hijacking of another vessel on Aug. 3 putting shippers on high alert. The incidents, blamed on Iran, which denies involvement in both, could set back efforts to resurrect the nuclear deal and gain Tehran sanctions relief on its oil exports. Talks with western powers have stalled since mid-June, though Raisi has said he supports a return to negotiations.
What's next? No new nuclear talks have been scheduled yet, but Iran's hopes of reviving its critical oil sector rests on clinching a deal. Until sanctions are lifted, Iran will largely be sidelined, while the rest of its OPEC+ counterparts are planning to hike production by a collective 400,000 b/d every month through the end of 2022. That will heighten competition for Iran, which produces mostly heavy and medium sour crudes that compete against grades from Saudi Arabia, Iraq, Russia, the UAE, Oman, Kuwait, Venezuela and others.
What's happening? Russia, the world's largest wheat exporter, harvested 50.2 million mt of the grain between the start of the MY2021-22 and Aug. 3, compared with 53.4 million mt during the same period last year, the Russian agricultural ministry said in an Aug. 5 report. As of July 29, the country exported 1.7 million mt of wheat, 34% behind the last year's pace, according to the Russian Federal Service for Veterinary and Phytosanitary Surveillance. Concerns about declining supply pushed up prices of Russian 12.5% protein wheat to $267.5/mt on Aug. 6, up 14.8% compared with a month earlier.
What's next? S&P Global Platts Analytics has cut its estimate for Russia's wheat output in marketing year 2021-22 (July-June) to 80.2 million mt, against an earlier estimate of 83.8 million mt, due to a decline in the winter crop area. Major Russian agencies have also scaled down their projections due to lower sowing of winter wheat and anticipated poor yields.
What's happening? The Electric Reliability Council of Texas in July approved 590.4 MW of new generation capacity for commercial operation, comprising more than 550 MW of wind nameplate capacity and more than 40 MW of battery storage capacity. Another 626 MW of capacity was approved for synchronization, meaning it is generating power for the grid but is not participating in the ERCOT market, according to ERCOT's monthly Generation Interconnection Status report, released Aug. 2. More than 510 MW of that total is solar-powered near Houston, while the remainder is gas-fired, all in West Texas' Lubbock County. Synchronization is the last step before commercial operation approval.
What's next? The addition of so much generation with near-zero marginal cost may tend to weaken wholesale power prices. ERCOT North Hub on-peak August packages ended trading July 29 around $96.75/MWh, according to the S&P Global Platts M2MS Forward Curve, well below the year's peak of $144.50/MWh set during a heat wave on June 14.
Reporting by Stuart Elliott, J Robinson, Herman Wang, Sampad Nandy and Jared Anderson