Gas prices on the Netherlands-based Title Transfer Facility (TTF) fluctuated in response to the insurrection in Russia over the weekend but remain volatile on concerns that there could be further impacts on Russian gas flows to Europe through Ukraine.

TTF prices were in the low $10 per million British thermal units (MMBtu) on 27 June before lifting to $11.20 per MMBtu at close.

Prices had earlier risen to $11.80/MMBtu on 26 June before falling on news that the Wagner Group’s armed insurrection in Russia on 24 June had proved short-lived.

Despite the quick resolution, increased geopolitical risk remains with fears that prices could escalate if there is any impact on Russia’s remaining gas pipeline flows through Ukraine.

Prior to the insurrection, the TTF had settled at $10.39/MMBtu on 23 June, a level last seen on 9 June when news emerged that maintenance schedules on Norwegian pipeline flows would be extended.

This week’s TTF price reflects the bearish dynamic caused by strong storage fundamentals which will keep TTF prices rangebound and the bullish dynamic of Russian pipeline flows being influenced by geopolitical risks. In Asia, spot LNG prices have generally followed the TTF, rising marginally to $11.79/MMBtu on 27 June.

In the US, the Henry Hub price rose to $2.83/MMBtu on 27 June, continuing its gradual upward trend in recent weeks but largely shielded from fluctuations in TTF and Asia spot prices.

Europe

At the time of writing on 27 June, the TTF price was at $11.20/MMBtu, marginally lower than the $11.80/MMBtu on 26 June following the internal discord in Russia.

Prices on both days are still lower than the $11.92/MMBtu quoted in last week’s note on 20 June when Norway announced it would extend planned maintenance, but higher than the $10/MMBtu seen just prior to the Wagner insurrection due to strong European storage fundamentals.

As of 25 June, European gas storage facilities are 76.16% full, holding 857.92 terawatt-hours (TWh) or 77.21 billion cubic meters (Bcm) of gas.

This is significantly higher than this time last year when storage was just 56.14% full.

Storage levels have built up more quickly this year due to a warm winter in Europe, with storage levels reaching 76% full two months earlier than last year, with 76.19% only achieved on 18 August 2022.

Net injections into storage typically continue through to late October or early November, when the withdrawal amount exceeds the injection amount as temperatures cool, resulting in net drawdowns.

With gas storage this full, Europe is likely to reach its 90% capacity target far earlier than the deadline of 1 November.

Considering historical demand, and assuming different supply scenarios, storage facilities could even be full ahead of winter this year, resulting in gas flows having to be diverted elsewhere.

Norwegian gas flows were at 232.10 million cubic meters per day (MMcmd) on 26 June, lower again than the 256.30 MMcmd observed on 19 June.

Ongoing maintenance at the Oseberg field was due to be completed on 27 June but has been extended to 5 July.

However, compared to the full 22.5 MMcmd of affected capacity in the past week, affected capacity will gradually taper to 9.5 MMcmd as the restart date approaches.

Maintenance continues at the Troll field impacting 21.5 MMcmd of capacity, with the expected end date of 4 July unchanged.

The most significant maintenance to note is the 78 MMcmd of affected capacity at the Nyhamna gas processing plant which receives feedgas from the Ormen Lange and Aasta Hansteen fields and where an earlier three-week extension was the primary cause of a spike in TTF prices.

Maintenance work at Nyhamna is still projected to be completed on 15 July, though TTF prices could rise if there is further unplanned extensions to Norwegian flows.

Saying that, high storage levels in Europe should be enough to keep prices in check.

Russian flows into Europe totaled 82.64 MMcmd on 24 June, with 47.56 MMcmd transiting through Ukraine and 35.08 MMcmd via the TurkStream pipeline from Russia to Turkey.

Russian flows have remained stable since TurkStream restarted following maintenance.

However, the Wagner insurrection has increased the risk of geopolitical instability affecting Russian pipeline gas flows.

Based on Rystad Energy forecasts, if Russian flows to Europe ceased entirely this year, Europe would still be able get through winter provided it maintains ongoing demand cuts.

So far, reducing gas demand has helped Europe to build up healthy gas storage levels for this winter and future ones as well.

Asia

Asia spot LNG prices continue to follow the TTF’s movements with Asian spot LNG rising slightly this week to $11.79/MMBtu as of 27 June, compared to $11.20/MMBtu on 20 June.

Given the time difference between Asian and European markets, the increase in the Asian spot LNG price may still be reflecting the initial uptick in TTF prices from the events in Russia.

Assuming a difference of $1/MMBtu in transport costs for cargoes between US-origin cargoes transported between Asia and Europe, Asia spot LNG and TTF prices in the past week resulted in the inter-basin arbitrage being open for several days.

The Asian spot LNG price has typically lagged the TTF, although it started to track ahead in the first week of June before the rally in the TTF due to Norwegian maintenance extensions.

Prices appeared to return to fundamentals before the events in Russia over the weekend, with both the TTF and Asia spot LNG price declining.

Assuming there are no further supply shocks, high storage levels in Europe could see the Asian spot LNG price revert to a premium over the TTF.

If the premium can be maintained, the price in Asia could compete with Europe to attract cargoes from the US.

LNG vessel charter rates have started to reflect competition for charter vessels between the Pacific and Atlantic basins, with West of Suez spot charters increasing to $75,000 per day and East of Suez spot charters rising to $70,000 per day.

Charter rates on both sides have increased by over $20,000 per day on the week, taking a brief respite in the second and third week of June when arbitrage closed due to high TTF prices.

In the first week of June when arbitrage opportunities first opened up, charter rates in both basins increased by over $10,000 per day.

Major Japanese power utilities reported combined storage levels of 2.37 million tonnes (Mt) on 18 June, some 10% higher than the 2.14 Mt reported in the same period last year, and 21% higher than the five-year average of 1.95 Mt.

Higher-than-normal inventory levels in Northeast Asia, including Japan and South Korea, could dissuade major purchasers in Northeast Asia from spot market purchases.

By contrast, South Asian buyers still have prompt demand due to relatively lower Asian spot LNG prices in recent months.

Japan’s weather bureau has forecast above-normal temperatures through to the third week of July.

The forecast shows over a 50% probability of above-normal temperatures in the southern part of Japan including Southern Kyushu and Okinawa.

Further north, there is over a 60% probability of above-normal temperatures for the remaining regions in Northern Kyushu, the main island of Honshu, as well as in Hokkaido.

In South Korea, there is a 50% probability of normal temperatures across much of the country for the first week of July, with a joint 40% probability of normal and above-normal temperatures for the rest of July across the entire country.

As mentioned last week, fundamentals in Asia remain unchanged with high storage levels in Northeast Asia keeping major purchasers from further procurement until the effects of a warmer month ahead emerge. The dynamic between Asia spot LNG demand and the TTF hinges on the extent of restocking activities in Asia following warm weather.

US

Henry Hub prices were at $2.88/MMBtu on 27 June, up from $2.54/MMBtu on 20 June.

Prices have increased due to a tightening balance as summer weather gradually heats up, though high storage levels have kept price movements limited.

Storage levels were reported to be at 2,729 billion cubic feet (Bcf) as of 16 June, some 15% higher than the five-year average of 2,367 Bcf and 26% up on the 2,158 Bcf this time last year. Injections into storage were at 95 Bcf on 16 June, some 10% higher than the five-year average of 86 Bcf and 25% higher than 76 Bcf in the same period last year.

As reported last week, the weather is expected to be hotter-than-normal in July, boosting gas power demand for cooling throughout the US.

An ongoing heatwave in Texas will drive Electric Reliability Council of Texas (ERCOT) power prices up, with gas power demand for cooling likely to follow.

Feedgas into LNG export facilities was at 10.7 billion cubic feet per day (Bcfd) as of 25 June.

This is lower than the May average of 12.3 Bcfd due to planned maintenance at Sabine Pass LNG for much of the month.

Feedgas into Sabine Pass was at 2.7 Bcfd as of 25 June, compared to an average of 4.6 Bcfd in May.

With maintenance due to conclude at end-June, feedgas into US LNG export facilities should pick up in the coming week once Sabine Pass returns.

Overall, with dry gas production remaining resilient in the 100-101 Bcfd range and an increasing gas power demand for cooling, the Henry Hub price is expected to settle higher, although above-average gas inventories will weigh on any sharp increase in prices.