28 Aug 2024 | 16:27 UTC

Italian PSV hit 16-month highs over TTF on maintenances, low LNG sendouts

Highlights

Algeria will curtail supply for maintenance

Ongoing maintenance at OLT LNG facility

Eni postpones Libya pipeline maintenance

LNG sendouts from Italy fall 15% on year

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Italian PSV month-ahead natural gas price surged to its highest premium over its Dutch and Austrian counterparts in over 16 months as maintenances and low LNG sendouts in the region keep Italian prices elevated.

Platts, part of S&P Global Commodity Insights, assessed the Italian PSV month-ahead contract at Eur41.675/MWh ($13.635/MMBtu) on Aug. 27.

This assessment placed it at a 16-month high premium of Eur2.935/MWh over the Dutch TTF month-ahead contract, and a similarly high premium of Eur1.065/MWh over the neighboring Austrian CEGH month-ahead contract.

These are the highest levels seen since April 2023, when the PSV versus TTF spread was at Eur3/MWh April 23 and the PSV versus CEGH spread was at Eur1.15/MWh April 21.

"In Italy from August to September there is a relevant switch in terms of consumption from industrial activity," one Italy-based trader said, referring to typically weak demand conditions across the country during the August Ferragosto holiday period.

Industrial demand in Italy has averaged 21.3 million cu m/d over August so far, this compared to 30.5 million cu m/d over July according to S&P Global Commodity Insights data.

In 2023, Italian industrial demand then saw a month-on-month increase of around 38% from August into September. Similarly, local distribution consumption for end-users in the country was 28% higher in September 2023 compared to the previous month.

Maintenances reinforce PSV bullishness

The supply-demand balance in Italy has also tightened due to ongoing and impending maintenance schedules at important natural gas and LNG infrastructure, which has raised spot and front-month gas and LNG prices in Italy.

Algerian flows to Italy will be curtailed by 58.3% between Sept. 3-13 due to planned maintenance at Mazara Del Vallo, limiting Algerian gas flows to a maximum of 43.2 million cu m/d.

This was supposed to coincide with the maintenance at Greenstream pipeline, which runs between Libya and Italy; however, Eni North Africa has postponed the maintenance by a month, from Sept. 8-18 to Oct. 8-18.

"Italian market is really tight, and those few million cu m/d actually mean a lot now when there is less pipeline supply available from the North and Azeri imports are maximized," said Alija Bajramovic, Senior LNG Analyst at Commodity Insights.

The bullishness is also coming from the ongoing maintenance at Italy's 5 Bcm/year OLT Offshore Toscana LNG facility, which has been under maintenance since Feb. 22, with operations expected to resume in late October. However, traders are concerned that the maintenance could extend into December.

"OLT is still out in September, and we have not heard anything on cargo nomination there," said an Atlantic-based LNG trader.

Low LNG sendouts pressure prices

Gas sendouts from LNG facilities in Italy this year have been consistently below last year's levels since the second quarter, according to Gas Infrastructure Europe data.

In August so far, the average gas send out from Italy's LNG facilities has amounted to 357 GWh/d, down 15% from same time last year.

"There's also low LNG sendout ... I know there are some maintenances, so it is necessary for PSV to have premium versus TTF and other hubs," the first Italian trader said. "When LNG is low, pipeline flows from North Europe now is a kind of compensation... the baseload is North Africa, TAP, and LNG."

This has not only pressured pipeline gas prices, but LNG prices too. The DES East Med prices have climbed to the highest premium versus their Northwest European counterparts since its launch in December, while also being the highest premium against the West Mediterranean since March.

"Norwegian maintenance is coming, less supply available via Switzerland; combine this with lower year-on-year Algerian imports and tight global LNG market -- they need to bid higher in order to attract that marginal source of supply, which is now most probably LNG, not NWE pipeline imports," Bajramovic added.

The East Mediterranean marker was assessed at $12.928/MMBtu, a 36.5-cent/MMBtu and 33.5-cent/MMBtu premium against the Northwest Europe and West Mediterranean, respectively.

Italy has imported 790,000 mt of LNG across August so far, slightly down on the month from the 820,000 mt imported across the same period in July, but in line with the levels in August 2023, which stood at 800,000 mt, S&P Global Commodity Insights data shows.

This places Italy as the fourth highest importer across Europe, behind France, Netherlands and Spain.

The prices in Italy are also attracting a risk premium, according to market sources, amid ongoing geopolitical conflicts.

The instability in the Middle Eastern region, along with Russia-Ukraine conflict, is supporting the prices in Europe, especially in Italy and East Med, as any escalation can risk the gas supplies into southern and central European nations.


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