Europe cannot compete with Chinese dash for LNG

Europe cannot compete with Chinese dash for LNG

As the Chinese government looks to clean up the environment, it’s switching thousands of homes and businesses away from coal and onto gas. This has seen demand for Liquefied Natural Gas (LNG) double in the last two years.

European storage started this summer at its lowest levels on record following the impact of the ‘Beast From the East’. This should have encouraged very strong injections right through the summer, ensuring there is enough supply to deal with winter demand.

Storage across Europe has been filling, and overall levels are closing in on the average seen over the previous five years.

European storage

However, when we look a little deeper, we can see that injections were very strong in June. As the summer has progressed the rate of injections has remained fairly constant, while in previous years the rate increased as we moved further into summer. Industrial shutdowns and school holidays in August freed up gas for increased injections.

Average daily storage injections

This August has only seen a moderate increase on July’s levels and, possibly more importantly, a slower rate of injections than last year. This is despite the need to put more gas into storage.

Why is less gas going into storage?

Demand and piped supply have remained at similar levels to previous years but the biggest difference is coming from Liquefied Natural Gas (LNG). Looking at total LNG send out across Europe we can see a significant reduction in volumes. The difference is almost the same as the equivalent reduction in injections.

Average daily LNG

The lower levels of LNG are because fewer cargoes are coming to Continental Europe and the UK.

This is due to prices elsewhere being much higher. Looking at the volume of LNG received in the UK, along with prices in the UK and the Far East, it’s clear to see when the difference between the prices has an effect on our level of imports. Suppliers will send the gas to the area they will make the most profit.

UK and Asian LNG price

Prices in Asia have such a large premium over Europe due to China’s insatiable demand for gas.

As the Chinese government looks to clean up the environment, it’s switching thousands of homes and businesses away from coal and onto gas. This has seen demand for LNG double in the last two years:

China by imports BCM

For UK consumers, as the gas market becomes ever more global, increased competition for gas will likely put pressure on prices, pushing them down. However, in the shorter term, if the UK needs extra gas (for instance due to a cold snap or supply issue) prices will have to at least match the Asian price to attract supplies for one of the UK’s three LNG terminals.

With Asian LNG prices for the coming winter over 20p/therm higher than in the UK this is an early indication of the cost of meeting higher demand in the heating season. This issue of reduced flexibility is particularly prevalent this year in the light of the Rough closure and the scaling back of Groningen production.

Stay informed with Utilitywise

Our Market Intelligence team keep a close eye on the energy markets and industry updates, keeping our clients informed at a frequency to suit them.

Visit our website to find out more about Utilitywise Market Intelligence.

Long-term Price Forecasting

Electricity and gas are some of the most volatile commodities today. If you’re uncertain about how to budget effectively for your energy costs then we have a solution for you; access year-on-year price projections for the next five years with our Long-Term Price Forecast Report.

This report calculates future energy prices which include the ever-increasing green subsidies, network costs, and taxes.

To find out more about what the report details, and how it can be tailored to meet your specific needs, download our factsheet here.

Ben Sherbrooke

Posted by on Thursday, the 16. August at 11.02