Oil prices continued to rise on Wednesday in response to inventory data from the US indicating strong demand and continuing constraints on exports from Saudi Arabia and Russia.
Brent was up 2.8%, from USD 93.96/barrel on Tuesday to USD 96.55/barrel, while WTI was up 3.6%, from USD 90.39/barrel to USD 93.68/barrel. Brent now needs only a further 3.6% rise to cross the psychologically significant USD 100/barrel threshold and there is little reason to suppose that it will stop there.
With many gas and LNG contracts still indexed to oil, the implications for higher natural gas prices are clear.
According to the latest wholesale prices report from the International Gas Union (IGU) – published earlier this month – the oil-price-escalation (OPE) indexed price mechanism still accounted for 17.5% of global natural gas consumption in 2022, despite the inexorable rise of gas-on-gas (GOG) competition, which accounted for 50%.
For LNG imports, the OPE share was much higher, at 53% in 2022, compared with 47% for GOG.
European natural gas prices continued their downward trajectory on Wednesday after Monday’s jump – which Energi Denmark’s daily market report attributed primarily to “speculative actors closing their short positions”– but were on the rise on Thursday morning on news of further cuts in Norwegian exports.
TTF front-month futures closed down 3.1% on Wednesday, from USD 12.49/MMBtu on Tuesday to USD 12.10/MMBtu. In the UK, NBP was down 3.0% from USD 12.44/MMBtu to USD 12.06/MMBtu.
The UK’s National Gas – operator of the National Transmission System (NTS) – published its Gas Winter Outlook on Wednesday, forecasting that overall demand in Great Britain would be comparable to last year and that in all scenarios the market would need “substantial” imports of LNG and Norwegian gas to balance.
In a cold winter scenario, GB would need to import additional gas from Continental Europe through its two interconnectors. GB has relatively little storage compared with the main gas-consuming countries across the English Channel and substantial imports would increase competition for stored gas. Storage levels in the European Union rose to 95.19% full on Tuesday, according to GIE data.
In Asia, JKM edged down by 0.4%, from USD 14.65/MMBtu on Tuesday to USD 14.60/MMBtu on Wednesday. The TTF-JKM spread continued to be volatile, up 15% to USD 2.49/MMBtu, mainly because of swings in European prices.
In the US, Henry Hub closed up 4.1%, from USD 2.66/MMBtu on Tuesday to USD 2.76/MMBtu on Wednesday, and were rising again on Thursday despite expectations of a potential increase in storage surplus in government data to be published later in the day.
Front-month futures and indexes at last close with day-on-day changes (click to enlarge):
Time references based on London GMT. Brent, WTI, NBP, TTF and EU CO2 data from ICE. Henry Hub, JKM and API2 data from CME. Prices in USD/MMBtu based on exchange rates at last market close. All monetary values rounded to nearest whole cent/penny. Text and graphic copyright © Gas Strategies, all rights.