Gas continues to flow westbound into Europe from Russia, but with prices remaining high, paper and steel become the latest sectors to curb or cease production.
Gas prices followed oil down over the past two days as some of the geopolitical risk premium wore off and diplomatic discussions between Ukraine and Russia were held in Turkey. In line with most expectations, these yielded no real breakthroughs.
Russian exports to Europe are stable day on day at around 255 million m3/d. The Mallnow pipeline remains in westbound mode. However, the Gas Transmission System Operator has reported that Russian forces have taken over two compressor stations in Luhansk and Kharkiv. Flows through Ukraine continue to be stable but risk of disruptions due to damage is now elevated.
We now see signs of industrial demand destruction taking hold across a number of sectors in Europe – starting with fertiliser, paper, and steel at these prices.
Fortunately, Mother Nature has spared the markets so far — near term temperature forecasts continue to be revised upwards and wind output continues to soar. That said, Europe’s attempt to fill out 90% of its gas storage by October is likely to be a challenging endeavour as that would likely slow LNG demand growth in Asia, suggesting elevated prices for months on end.
Oil prices continue to demonstrate volatility on the back of uncertain incremental supplies from outside of Russia, in addition to continuing geopolitical risk from the war, which is likely to present bullish readthrough for the TTF as well. Volatility therefore persists: TTF prices started the day on a bearish note at about US$41/million Btu but increased to US$45/million Btu by 10:30 GMT.
In Asia, markets are keenly watching the results of the Sakhalin-2 spot sale tender. The market expects limited participation in the tender due to the reputational and financial risk of lifting a Russian origin spot cargo. However, the result could pose downside risk to Asian LNG prices if sold at a discount to prevailing spot prices. It is worth noting that the facility is known to produce over its 9.6 million tpy capacity – in 2021, they exported 10.2 million t and have previously exceeded 11 million t. This could limit price surges within the region by catering to the few buyers still willing to purchase spot cargoes from them.
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