Qatari terminal Ras Laffan's ramp-up, Norwegian maintenance, Asian demand prospects and the reversal of inverted or narrow seasonal spreads, as well as weather factors, will determine Europe's ability to reach winter with healthy storage levels, market participants have told Argus.
As the summer injection season reaches its peak, participants are increasingly concerned about European underground inventories, which were 207TWh below the five-year average on 29 June. Most expect EU sites to be 70-80pc full at the start of winter, while "70pc is the absolute minimum for navigating safely the winter", a trader said. Whether inventories finish at the top or bottom of that range will depend on several summer demand and supply risks.
Ras Laffan's restart and Asian demand
The return of QatarEnergy's Ras Laffan remains the single most important unknown, participants said. Hopes of a rapid resumption of flows through the strait of Hormuz following a recent peace deal have dissipated after successive breaches of the ceasefire.
In this context, third-quarter Asian LNG demand and its ability to pull supply away from Europe is another key factor, particularly as northeast Asia reaches peak summer demand.
Northeast Asia's appetite for Atlantic basin spot cargoes will be particularly acute if the Ras Laffan restart continues to be delayed and the El Nino weather phenomenon significantly lifts the region's temperatures above normal. Long-term forecasts on Tuesday predict above-average daily highs in Seoul, but normal temperatures in Beijing and Tokyo in the coming weeks.
Asian demand in the coming months will also depend on China's balancing role in the global market, and whether the country's authorities will be less strict in filling storage as they were last year, a trader said.
European LNG imports must increase to allow sufficient spare supply for storage, market participants insisted. But any reversal in global LNG flows seems unlikely in the short term. The inter-basin arbitrage remains open for most firms until September-October, while prices at some hubs, such as Peg and ZTP, are even higher than the delivered prices in northwest Europe for July and August. This makes LNG deliveries unprofitable, leaving empty slots at French and Belgian terminals for those months.
Strong Asian buying pressure and little competition from European firms pushed LNG deliveries to Europe to a 20-month low last week.
The Norwegian maintenance wildcard
Heavier works at Norwegian upstream assets than currently expected could tilt the balance late in the injection season, market participants said.
Production capacity cuts were set at 71mn m³/d in September, as of Tuesday — less than half the actual 187mn m³/d reduction last year, but much stronger than the 42.3mn m³/d projected on 28 May.
Norwegian offshore operator Gassco tends to add more works closer to the time and unplanned outages often occur. Gassco works are usually a key factor for Europe's end-of-summer outlook, and the bloc's ability to rely on Norwegian flows for strong late injections could be particularly crucial this year given the large storage deficit.
Storage spreads vs government intervention — who blinks first?
Market participants are also tracking potential signs of government intervention to secure storage filling as inverted seasonal spreads persist.
Near-term supply tightness has kept summer prices above those for winter delivery, slowing injections to well below the pace needed to reach next season with healthy inventories. EU injections for the remainder of summer would have to average 3.79 TWh/d to reach an 80pc fill level by 1 October. This would be far stronger than the five-year average injections of 2.9 TWh/d during 30 June-30 September.
But as summer progresses and injections lag, a growing risk premium on the winter contract could tilt the balance and normalise seasonal spreads. Security of supply concerns could also prompt some governments to intervene, as the Dutch and Italian states have already done. The key question is who will "blink first", a trader told Argus.
Last year, storage spreads moved to encourage filling stocks in the EU from July, boosting demand for injections in the third quarter.
Under German law, market area manager THE is obliged to book capacity and inject gas if storage operators fail to do so. But THE has repeatedly assured that it would not intervene in the filling process.
Weather risk to drive marginal injections
A recent episode of extreme heat in Europe showed the impact that strong power-sector gas demand — caused by high electricity use, nuclear outages and low wind — can have on marginal injections.
Consumption across Europe's 14 largest gas consumers rose to 6.89 TWh/d on 17-26 June from 6.29 TWh/d earlier in the month on stronger power-sector burn. This weighed on injections, which fell to 3 TWh/d during the heatwave from 3.4 TWh/d earlier in the month.
By contrast, the El Nino weather phenomenon is linked to "a higher chance of milder, wetter and windier weather during autumn and early winter" in northwest Europe, according to the MetDesk weather service. Mild windy weather could keep gas consumption weak in October-November, allowing for late injections or delaying withdrawals.
Several market participants also highlighted the possibility that hurricanes in the Atlantic could disrupt US LNG loadings in August-September, causing temporary price spikes. But the US National Oceanic and Atmospheric Administration expects this year's hurricane season to be less active than normal because of El Nino.
