After weeks of volatility, we could see sideways to downward movements on global gas prices this week as the market has now evaluated the impact of the Israel-Hamas conflict.

Fundamentals remain net bearish as we head into an El-Nino winter for the Northern Hemisphere, but prices are likely to factor in geopolitical risks that will keep them elevated.

Europe

Title Transfer Facility (TTF) prices have tempered from $17 per million British thermal units (MMBtu) earlier in the week to around $15 per MMBtu at the time of writing.

The outlook is bearish overall.

The cautious optimism that came with EU gas consumption in August this year exceeding last year’s has diminished as September figures returned to showing a year-on-year decline, driven by higher solar and nuclear generation as expected, but more importantly by lagging industrial demand, which the recent uplift in prices is likely to pressure further.

The northern hemisphere is also widely expected to experience an El Nino winter this year, which typically means milder-than-normal temperatures in Europe’s northern regions, although sporadic cold snaps could still draw on gas.

Norwegian pipeline supplies had ramped up to 328 million cubic meters per day (MMcmd) by 16 October, from 288 MMcmd on 9 October, marking the end of an extensive maintenance period.

We expect minimal maintenance through winter with the recent surge in prices likely to encourage operators to maximize production.

On the generation side, Germany has also elected to keep 1.9 gigawatts (GW) of lignite-powered generation capacity available for winter emergencies this year which could reduce gas demand by around 0.15 billion cubic meters (Bcm) for each month of operation (assuming a 60% capacity factor and 48% efficiency for a substitute gas-fired power plant).

While Europe’s gas demand side is now deemed unlikely to surprise, supply side factors could add bullish pressure albeit linked to geopolitical events.

Allegations that ‘external activity’ caused a leak in the Balticonnector pipeline connecting Finland and Estonia have brought geopolitical risks to the fore when it comes to energy infrastructure.

The damage is understood to be severe enough to render the pipeline non-operational until April 2024.

However, it is unlikely to alter the gas balance in the Baltic states, given Estonia can import gas from Lithuania and Finland has a floating storage and regasification unit (FSRU) in place at Inkoo.

Other bullish momentum to Europe’s gas prices could come from the fallout of higher oil prices, though this could also be tempered by optimism surrounding the possible lifting of US sanctions on Venezuela.

Asia
A key bullish risk has now been lifted with union workers at the Chevron-operated Wheatstone and Gorgon LNG export facilities in Western Australia agreeing to call off strikes just as they were set to resume, following days of negotiations under the guidance of Australia’s Fair Work Commission.
This should bring the strike saga an end to and with it the risk of reduced exports to Asia Pacific which have been a concern since August.

Like Europe, Asia’s winter is widely expected to be warmer than normal although a delay in restarting Kansai electric’s Takahama No.3 (870 MW) nuclear unit and the shutdown of the Shinchi No.2 (1 GW) coal unit could boost the nation’s winter gas demand by approximately two LNG cargoes per month.
There is also cautious optimism around China’s economic recovery, with the NBS Manufacturing Purchasing Managers Index (PMI) finally exceeding 50 in September for the first time since March.
However, higher oil and LNG prices in the region could stymie further recovery.

US
Henry Hub gas prices have tempered marginally on the week to around $3.1 per MMBtu and appear to have consolidated at around the $3 per MMBtu mark.
This is due to record production levels balancing out an upcoming fall in temperatures combined with the start-up of New Fortress Energy’s Altamira FLNG in Mexico which is expected to ramp up in November.
At full capacity, the 1.4 million tonnes per annum (Mtpa) facility will draw in around 210 million cubic feet per day (Mcfd).