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ENG: PSV-TTF August basis narrows

19 Jul 2017 19:06 (+01:00 GMT)
ENG: PSV-TTF August basis narrows

London, 19 July (Argus) — The PSV August contract has tightened its discount to the TTF in recent days with lower expected demand for gas from northwest Europe.

Italy has been able to maintain steady injections even during maintenance that has cut Tag deliveries since 10 July. But the constraints were scheduled to ease on Friday afternoon, which could pare demand for gas from other sources.

Russian receipts had been strong this summer until this month's maintenance. Eni is still taking make-up gas from Gazprom this year and could try to clear as much as possible, especially while low hydroelectric stocks have lifted power sector gas burn across southern Europe.

Transitgas and Transmed flows have been quick during the Tag maintenance to help maintain the stockbuild. But deliveries from either northwest Europe or Algeria — or even both — may need to be cut in August, providing Tag receipts and LNG imports are quick.

There could be some incentive to turn down Algerian imports first. Northwest European prompt and near-curve prices have slid well below the cost of crude-linked supply even when taking into account delivery costs for firms without any long-term booked capacity on the route.

And it could be cheaper to import LNG than Algerian pipeline gas, at least for firms with long-term capacity at any of the terminals. Variable costs for LNG imports for long-term capacity holders are about 51¢/MWh.

The PSV front-month market has held a premium to northeast Asia LNG prices wider than 51¢/MWh for much of this summer. BP has brought cargoes to the Adriatic LNG terminal, while one of the capacity holders at Panigaglia has imported Algerian supply outside the regulated LNG storage and regasification service.

Italian LNG sendout reached a record high last month and was on track to remain strong in July.

But there could only be limited flexibility for a substantial cut to Algerian receipts while still meeting contractual commitments. Italy may need to reduce Transitgas flows as well if there is not a substantial drop in Transmed deliveries.

Consumption typically tumbles in August because of the holiday season and commercial injection capacity is expected to be reduced next month. But France may have supply to offload because of high LNG receipts and low storage bookings. Oltingue flows have already climbed close to full capacity since constraints at the border point ended on 12 July.

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PSV-TTF August basis tightens €/MWh