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EU gas sendout from LNG facilities drops to 7-month low

Highlights

Healthy gas nominations, inventory levels weigh on LNG imports

Tight spreads between LNG and gas disincentivizing trade

  • Author
  • Sakshi Jalan    Thomas Seth    Megan Gildea
  • Editor
  • Jonathan Loades-Carter
  • Commodity
  • Energy Transition LNG Natural Gas Upstream

EU gas sendout from LNG facilities has dropped to a seven-month low as reduced demand and healthy gas nominations weigh on LNG imports.

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Sendout levels from EU LNG hubs stood at 2,789 GWh/d May 18 and 2,797 GWh/d May 19, according to Gas Infrastructure Europe data -- the lowest the bloc has seen since Oct. 8's 2,710 GWh/d.

Sendout was also down sharply on the year, averaging at 3,092 GWh/d for the first 19 days of May, 24% lower than 4,048 GWh/d during the same period last year.

The low sendout levels are a sign of weak LNG demand in the region as current price levels and competition from the East is prompting market players to rely more heavily on gas.

"I think it's just a reflection of weak LNG demand," David Lewis, LNG Analyst at S&P Global Commodity Insights, said. "Norwegian flows have remained robust and demand has been tempered by mild weather and strong renewables generation."

Indeed, Europe has imported a total of 5.5 million mt of LNG in May so far this year, according to Commodity Insights data May 21. These are the lowest levels seen since September, when imports totaled 5.4 million mt between Sept. 1-21. The imports are also down 32% from same time last year.

On the gas side, total exit nominations from the Norwegian Continental Shelf reached just under 9.61 Bcm over April for an average daily sendout of 320 million cu m, according to data from offshore pipeline operator Gassco.

Despite a recent uptick in maintenance that analysts at S&P Global expect to reduce NCS production by 11% month on month over May, average daily sendout from Norway has so far remained relatively robust at around 304 million cu m/d according to further Gassco data.

The European market is still awaiting higher summer temperatures, which could provide an impetus to LNG imports in certain European regions, although until then healthy gas inventory levels are dampening any urgency to import LNG for injections.

Gas inventory levels in the EU were 67.2% full as of May 19, according to GIE data, up from 65.2% at the same time last year.

"It's an indication that the market is softening as the inventory is full," said an Atlantic-based LNG trading analyst.

The tight spreads between LNG and gas, despite low demand, are also disincentivizing LNG trade in the region, with gas prices picking up in tandem with the JKM -- the benchmark price for delivering cargoes into North Asia. Europe is going strong on bids, but the prices are still in favor of Asia.

The JKM for July delivery was last assessed by Platts, part of Commodity Insights, at $11.498/MMBtu May 21, up 32.6 cents/MMBtu on the day, while the LNG DES Northwest Europe Marker for July was at $10.111/MMBtu May 20 -- a discount of 14 cents/MMBtu to the July TTF hub futures price.

There are a few ongoing maintenances in the region, which could have some effect on sendout levels for certain countries. However, this is usually counterbalanced by upticks seen in other regions.

"There are definitely quite a few regas maintenances out there," Lewis said. "For instance, Germany only has two active FSRUs [floating storage and regasification units] at the moment due to maintenance at the Lubmin FSRU and the delays to other terminals. But what's interesting is that other NWE countries have not seen an uptick to compensate for the reduced regas capacity."

Of all the European nations, only Poland has seen slight upticks in LNG imports year on year, and, Finland, Greece and Turkey have seen small increments month on month, while all the other countries have been bogged down by heavy declines.

Most of the regions in Europe, except for East Med and the Baltics, have been priced out, according to market participants. This is pivoting the region's reliance from LNG to the relatively cheaper pipeline gas.

The front-month values at the Dutch TTF -- Europe's bellwether natural gas hub -- have been largely stable at around Eur28-32/MWh since May began. Platts last assessed the TTF front-month contract at Eur31.925/MWh (equivalent to $10.172/MMBtu) on May 20.

Whether the LNG import levels recover as demand ramps up from cooling demand in summer months may not be determined until later in the year.

"[It] will depend on the weather and when NWE starts getting ready for the winter," said a trader.