Natural Gas Commentary - 1/13/2023
In 2019, the EU imported more than 50% of natural gas from Russia. As of August 2022, the dependency was reduced to 17.2% with further decreases later in the year as pipeline flows went as low as 1.8bcm/month in December. Simultaneously, US LNG imports increased from 0.65bcm/month in early 2021 to over 4bcm in August 2022. A global supply response combined with a demand reduction of 23.6% by the EU in November puts the continent in a rather comfortable position; according to internal calculations using BP data, this puts the EU on a sub 300bcm/annum run-rate of consumption. As a result, European gas storage levels are comfortably above the 5-year average, leading to Dutch TTF trading down to €62/MWh. To put things into context, Dutch TTF traded in the mid €350/MWh back in August. While trading at a discount for the better part of 2022, JKM prices are now at premium to TTF (Korea/Japan benchmark). Hence, we are now in a position where American producers are eagerly awaiting an increase in US export capacity through 2026 with more production also coming from nations like Qatar, Algeria, and Norway. Also in the mix, China natural gas consumption was down in 2022, which helped fill the void for Europe.