The dynamics of gas flows into China and question marks of the UK's green credentials are the focus of S&P Global Platts editors this week, as well as EU gas storage and US LNG supply.
1. Fall in China gas imports via Power of Siberia in May opens door for LNG
What's happening? Gas flows into China via the Power of Siberia pipeline in May were almost half what they were in June, at just 17 million cu m/d. The reduced flows in May likely propped up LNG demand, which rose 20 million cu m/d or 7% month on month. The next planned maintenance is scheduled for between September and November, and there was no announced maintenance in May, so why the volumes fell remains unclear. Furthermore, there is no economic incentive to turn down volumes amid currently elevated Asia spot LNG prices.
What's next? Power of Siberia volumes are expected to return to normal levels in June, and LNG imports have already started to slow recently, reaching 293 million cu m/d based on 30-day moving averages. The strong gas demand is expected to continue to be driven by robust industrial activity and top-line power demand.
2. UK credibility at risk ahead of COP26
What's happening? The UK government came in for heavy criticism last week at the hands of the influential Climate Change Committee, which warned that time is running out ahead of UN climate talks in November to produce credible policies that set a global Net Zero example. The conclusion that PM Boris Johnson's government is big on headlines but short on substance focused in particular on foot-dragging at the Treasury and the Department for Transport.
What's next? One key initiative singled out by the CCC was the UK's delayed hydrogen strategy, now expected sometime in July. Thus far the UK's focus has been on production of gas-based hydrogen with carbon capture and storage, but the strategy is thought to include measures for Contracts for Difference as well as incentives for electrolysis-derived renewable hydrogen in transport and large-scale industrial processes.
3. EU gas storage only at 2018 levels
What's happening? EU gas stocks are currently just 45% full, well down on the 78% level this time last year and down at 2018 levels. The slow pace of storage injections is triggering concern that Europe may not have sufficient stocks to see it through next winter, with winter gas prices at 13-year highs.
What's next? With stocks still low, the market will be watching closely this week to see whether Russia's Gazprom books additional capacity to send more gas via Ukraine in July to compensate for volumes lost during maintenance on two key gas pipelines during the month. If Russia then continues to send additional gas to Europe post-maintenance, it could help alleviate some of the concerns over storage levels later in the summer.
4. US LNG supply push boosts Cape of Good Hope transits
What's happening? Daily LNG cargo transits to Asia via the Cape of Good Hope have recently widened their edge over transits via the Panama Canal, amid a US supply push, congestion at the Panama Canal and market dynamics. S&P Global Platts Analytics data showed the rate of LNG tanker transits around the Cape of Good Hope so far for June has reached the highest level in six months. Spreads between end-user prices and the US Henry Hub have made the longer route palatable, even with Atlantic shipping rates outpacing Pacific rates.
What's next? US Gulf Coast LNG netbacks strongly favor the Platts JKM through the balance of summer, which should drive record trade flows from the Atlantic to the Pacific Basin. That could mean another pickup in voyages around the Cape of Good Hope, keeping the JKM/Dutch TTF spread wide through the season.
Reporting by Sze Hwei Yeo, Henry Edwardes-Evans, Stuart Elliott and Harry Weber.