Analysis Dutch natural gas flexibility: LNG out of the picture? is Gazprom the wildcard?
Low LNG sendouts and depressed Russian flows via Velke point allied with multi-year low natural gas stocks offer little remedy for curbing bullish Dutch gas contracts, with Gazprom seen as the key future source of flexibility, an analysis from S&P Global Platts showed Thursday. “LNG is out of the picture. Storage is not that great. Solution: LNG from Yamal and the wildcard: the Russians,” one European gas trader said. DUTCH LNG REGAS FALLS WHILE LNG STOCKS RISE Dutch net gas sendouts have remained near zero recently while LNG storage stocks are holding firm at a third of the maximum LNG storage capacity, indicating the possibility of reloads amid a high JKM/TTF Q1 2019 spread. The amount of Dutch LNG in storage stood at 127.6 million cu m Wednesday, up 5% from an average of 121.7 million cu m in August, according to data from Platts Analytics. Interestingly though, the amount of Dutch daily sendouts has fallen 8.5% to 480,000 cu m/d from August’s average of 525,000 cu m/d while total LDC and non-LDC demand rose over the period and gas supplies tightened significantly.Dutch LDC and non-LDC demand stood at 74.41 million cu m Wednesday, up from the August average of 63.3 million cu m/d.Higher demand coupled with tight supplies did not trigger higher regasification rates in the Netherlands despite rising stock levels. BULLISH JKM OPENS Q1 2019 ARBITRAGE A firm and wide Dutch TTF Q1 2019 discount to the Platts JKM benchmark of $3.431/MMBtu has been the driving force behind high stocks and low regasification rates. After discounting the LNG Zee-Japan/Korea Freight cost of $2.64/MMBtu, reloads appear to be economical for Q1 2019, at $0.791/MMBtu.Looking at the forward-month arbitrage though, the spread is uneconomical as the JKM has started to come off this week. Margins have eased into the negative at minus $0.263/MMBtu, the data showed. “In our morning meeting today it was indicated that with the move down of the JKM, we would now be in a range where reload is no longer profitable [on the front month]. And with the increase of TTF October this morning we should be in better shape,” one European gas trader said Thursday.Looking ahead at the first quarter of 2019 though, the profitable arbitrage is indicative of firm levels of LNG in Dutch storage in order to reload to more economical destinations.“Gate is of course somewhat special because the boil-off is so low so you could keep it at this level until the start of Winter,” the trader said. TIGHT DUTCH SUPPLIES: VELKE OFFERS NO REMEDY The TTF Winter 18 contract has continued to rise strongly, anticipating a tight winter. The TTF Winter 18 contract was assessed Wednesday at $9.326/MMBtu, up 12.7% from August’s average of $8.276/MMBtu, data from S&P Global Platts showed.A flurry of Norwegian unplanned maintenance works, bullish European gas-for-power demand, a strong generating fuel complex, and most recently lower-than-anticipated Russian flows continued to drive prices higher. Natural gas flows via the Velke border point, which delivers Russian flows to Ukraine, have been continuously easing this week. The gas allocations were running at 104.6 million cu m Thursday, from 133 million cu m Monday, Platts Analytics data showed.“There is still no relief from Velke,” the trader said. Traders said they were unsure of the cause, with upstream Russian flows remaining a “black box.” DUTCH STORAGE ONLY 79.2% COMPARED WITH 85.2% IN GY-16 The amount of gas in Dutch storage facilities stood at 102.9 TWh (9.561 Bcm) as of Wednesday, showing gas storage 79.18% full, according to Gas Infrastructure Europe (GIE). This level is below the levels recorded on the same day of gas years 15 and 16, when storage was respectively 85.24% and 90.35% full. Constraints at the Dutch storage facilities Bergermeer in August and at Grijpskerk early this year on the back of compressor issues have put injection levels under pressure. The current low storage levels will need to increase the pace of storage injections as we head into the Winter 18, despite tight gas supplies. GAZPROM’S NEW ELECTRONIC SALES PLATFORM: THE WILDCARD? With the JKM remaining too expensive for Continental Europe to absorb significant LNG volumes, Russia is the most likely to offer this well-needed flexibility.“The solution seems to be Nordstream 2; only Russia can offer that additional flexibility,” a German trader said.Gazprom, which has seen significant growth in demand for Russian pipeline natural gas in Europe so far in 2018, seems very well inclined to provide the market with additional sources of supply. Gazprom has announced it expects to start offering gas via short-term auctions soon through its newly launched Electronic Sales Platform (ESP), Mikhail Malgin of Gazprom Export said during Friday’s conference call on Gazprom’s second-quarter 2018 results.Yamal LNG could further offer some additional flexibility as exports ramp up. “If Yamal is running smoothly this winter and given that they don’t have all the vessels yet it could be that we get a little bit more LNG,” the trader said.
