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Bearish Drivers

– North West Europe storages are forecast to end February at 316TWh (57%), which is close to the higher end of the 5-year range for this time of the year. This poses a bearish risk for a strongly oversupplied market in Summer 24.

– The January increase of the German neutrality fee that adds additional costs on flows to other countries has disincentivised a lot of exports keeping more volume domestically and contributing to a North West Europe looser balance.

– Demand destruction across UK domestic and Industrial sectors continues.

– Strong Norwegian and UKCS supply continues amid a REMIT-free environment.

Bullish Drivers

– Escalated hostilities due to Houthi attacks on merchant vessels force more companies to bypass the Suez Canal and go via the Cape of Good Hope instead increasing voyage time and costs.

– Potential for temperature forecasts to be revised colder than current forecasts lifting heating demand than earlier expected.

– Risk of unplanned outages on Norwegian and UK continental shelf.

– The sanctions on Arctic LNG by the US, appear to have shown greater effect than expected previous. We still expect the plant to export, but at a lower level.

– A cold spell in the US in mid-January, caused “freeze-off” of gas production, reducing feedgas flows to LNG plants for few days. This likely to translate into fewer arrivals to Europe (around 4.5 vessels) and our LNG send-out forecast is slightly lower month on month.

In January, gas prices declined in contrast to December, affirming the bearish pattern observed since October. This trend aligns with the favourable fundamentals indicating smooth navigation through the heating season, characterised by ample storage levels and a consistent supply.

The fluctuations this month were primarily driven by shifts in weather forecasts, impacting market sentiment in both bullish and bearish directions. Notably, the UK experienced prolonged cold spells compared to the Continent. Due to its smaller storage capacity, the NBP market reacted more sharply to these weather changes. Consequently, the spread between TTF and NBP Day-Ahead prices contracted, discouraging exports.

At the start of the year, there were concerns regarding UK LNG due to winter storms that restricted berthing at Milford Haven. It wasn’t until January
6th, after a two-week delay, that Dragon was able to accept a delivery and resume its send-out operations.

Geopolitical developments have had a relatively constrained impact thus far. The primary focus remains on the ongoing armed conflict in the Red Sea involving a US-led coalition and Houthi rebels. Houthis have been targeting ships in solidarity with Palestinians. Efforts to minimise disruption to global logistics have resulted in organised counter-attacks. However, these measures have not eased concerns, leading to the redirection of Qatari ships away from the Red Sea. Utilizing the alternative route around the Cape of Good Hope entails an approximately ten-day delay.

As we move into the latter part of February, market sentiment is anticipated to lean towards a bearish outlook, driven by European gas fundamentals. The
weather forecast suggests conditions will be mostly normal, albeit slightly cooler than the temperatures experienced last year.

The projected total LNG sendout for NWE&UK in February is 255mcm/d, which is 20mcm/d lower than last year and slightly less than January. This decrease is attributed to the current global shipping situation, which favours routes from the US to Europe due to extended wait times at the Panama Canal and the ongoing Houthi attacks in the Red Sea. Additionally, the impact of US sanctions on Russia’s Arctic LNG project and trans-shipment has been more significant than initially anticipated. Consequently, importers with agreements with Novatek have declared force majeure. However, it is still anticipated that the plant will continue to export, albeit at reduced levels.

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