Alexander Pasechnik, Head of Analytical Department National Energy Security Fund

Natural gas in Europe rises in price despite record levels of stocks in European storage facilities. Prices are not the first week in “tone” due to fears of a reduction in the supply of liquefied natural gas (LNG). Thus, on August 22, the price of the September futures for natural gas at the TTF hub in the Netherlands exceeded $500 per thousand cubic meters during trading on the ICE exchange. The price of gas in Europe did not exceed this mark for more than two months.

The previous spurt was recorded a week earlier: during exchange trading on August 15, $450 per thousand m³ was exceeded. Then, for the first time, there were serious fears of a reduction in the supply of LNG due to the planned strikes at factories in Australia. Half a month has passed, but the problem continues to unnerve market participants, since up to 10% of the global LNG supply is in the “risk zone”.

The threat of forthcoming strikes has not been completely stopped. Chevron LNG has received notice from unions that strikes at its Gorgon and Wheatstone LNG plants in Australia will begin on September 7 unless the company reaches an agreement with workers.

On August 24, Chevron employees voted to give unions the right to go on strike. The announcement also emphasized that “Chevron will continue to work on the negotiation process, striving for results that are in the interests of both employees and the company”. Another Australian exporter, Woodside Energy Group, was able to strike a deal with workers without the risk of strikes. Whether Chevron can do the same is another question.

Although trading in the last sessions of the summer on the ICE exchange is associated with some price correction: for example, on August 30, a contract with a “day ahead” delivery at the TTF hub in the Netherlands closed at $404 per thousand cubic meters. The average gas purchase price in Europe in July was $337 per 1,000 cubic meters, and in August it was already about $394.

Another factor is also “spurring” gas prices in Europe – the reduction of Norwegian exports. This reinforces ongoing concerns about potential disruptions to operations at key Australian gas export facilities. On August 28, the Norwegian grid operator Gassco announced that additional work had been carried out at the fields that are part of the Segal network connected to the UK. The operator does not specify the duration of the reduction in capacity after the previously planned work.

The calendar autumn has begun. In addition, China will soon enter the game. Natural gas reserves in the Celestial Empire also need to be supported. Another seasonal battle for LNG between Europe and Asia is quite likely. She will be more furious if the strikes in Australia do start. Logistical disruptions could force Asian buyers to compete harder with Europe for supplies from the US, Qatar and other manufacturers.

Therefore, there is still groundwork for the growth of quotations, despite the reserves in the European subways (the reservoirs are filled by almost 93%) – after all, there is less and less piped gas in the European Union. In addition, there is a possibility of a complete cessation of transit through the territory of Ukraine. And this is also a big risk for the energy security of the EU. Gazprom has already warned Naftogaz that “pushing” far-fetched lawsuits in various instances is a direct way to break existing agreements. Although, so far, deliveries are in the same volumes – in August, the pumping on this route was above the level of 40 million cubic meters per day.

In the meantime, LNG inflows from terminals into the gas transmission system of Europe increased again to record levels for the end of August. Moreover, it is significant that the EU countries intend to import record volumes of LNG from Russia in 2023. And this is against the backdrop of the well-known initiatives and aspirations of Brussels to quickly abandon Russian fossil fuels, according to the plan – by 2027.

Such scenarios were announced by the Financial Times (FT), based on data from the international organization Global Witness. The newspaper writes that overall, EU imports of liquefied natural gas increased by 40% between January and July 2023 compared to the same period in 2021. During this period, Belgium and Spain were the second and third largest buyers of Russian LNG after China.

Global Witness spokesman Jonathan Noronha-Gant called it “shocking” that the countries of the community, eager to get rid of pipeline Russian gas at all costs, began to buy more Russian LNG. Apparently, the European commissioners are still aware that there is no reason to draw up a complete ban on the import of Russian natural gas (including LNG), as this could provoke a new energy crisis in the region.

The question is also whether Russia will send additional methane carriers from Yamal to the EU if, according to the criterion of marginality, it will be preferable to deliver cargo to the countries of the Asia-Pacific region. In addition, in July 2023, LNG production in Russia decreased by almost 8% compared to July last year. “LNG was produced 2.2 million tons, which is 7.9% less than in July 2022, and 4.3% less than in June 2023. In January-July 2023, LNG production decreased by 4.4% compared to January-July 2022 and amounted to 18.7 million tons.

In Russia, large-tonnage LNG is produced by Sakhalin Energy plants (co-owners are Gazprom, Japanese Mitsui and Mitsubishi), as well as Yamal LNG (participants are NOVATEK, French TotalEnergies, Chinese CNPC and SRF). The recorded decline in industry performance is more likely the result of large-scale preventive work at Russian factories this year, ongoing throughout the summer period, than possible other reasons. However, there will soon be more Russian LNG due to the launch of new capacities: NOVATEK plans to receive the first liquefied gas at the Arctic LNG 2 plant by the end of this year, and the first line is expected to reach its nominal mode in the first quarter of 2024.

As part of the Arctic LNG 2 project, it is planned to build three LNG production lines with a capacity of 6.6 million tons per year each. NOVATEK owns a 60% stake in the asset; other shareholders – French TotalEnergies, Chinese CNPC and CNOOC, as well as a consortium of Japanese Mitsui and JOGMEC – 10% each.