BAKU, Azerbaijan, Dec.3
By Leman Zeynalova – Trend:
Natural gas prices may face headwinds from the COVID-19 Omicron variant and doubts over vaccine efficacy, which is causing a pullback in energy commodities worldwide, but bullish factors are still at play as temperatures drop and the saga of European supply uncertainty continues, Trend quoted Rystad Energy’s Senior Gas Markets Analyst Kaushal Ramesh as saying.
He noted that in Europe, forecasts pointing to below-normal temperatures and an accelerating withdrawal from the already low storage levels are supporting TTF prices.
“Storage levels are down 4 percent from last week and assuming a 5-year average depletion profile between now and end March 2022, storage levels may start April 2022 at a very low 21 percent of notional capacity. However, European storage risks drastic depletion to around 12 percent of the notional capacity by April 2022 if we consider a depletion profile similar to earlier this year, which may happen if the winter continues to be severe, wind generation fluctuates, and substantial additional supplies from Russia are not forthcoming,” the expert said.
Ramesh believes that Gazprom will rely on day-ahead capacity booking on the Yamal-Europe pipeline throughout December, which could inject some volatility into prices as traders are left guessing how much volume will materialize day-to-day.
“Moreover, the recent surge in carbon prices, which are rolling into new all-time highs day on day, may throw a spanner in any plans for runaway gas-to-coal switching. That said, we note that LNG imports continue to be robust, with Western and Southern Europe importing around 6.8 Mt in November, up from 5.7 Mt in October, which may contribute some level of comfort to the market for the end of 2021,” he added.
The expert went on to add that in the US, consistent forecasts for mild weather going into December have placed the Henry Hub deep into sub-$5/MMBtu territory.
“Nevertheless, we are now firmly into the withdrawal season and storage depletion may accelerate if the weather takes a turn for the cold and residential heating demand increases sharply. We note a drop in LNG vessel deliveries to China, though this may be related to China’s new law governing data privacy. This may reduce transparency on LNG deliveries into the world’s currently largest LNG importer and inject another element of chaos into a very volatile market,” said Ramesh.
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