Gas prices in Spain and the UK have had the strongest reactions to the shut-in of Qatari LNG production because they are most exposed to the global LNG market.
Prices surged across Europe on Monday, but the increase was most dramatic at the Spanish PVB and UK NBP hubs (see table). The UK and Spanish markets tend to react more acutely to the dynamics of global LNG markets because they are more dependent on LNG to meet their demand and have limited underground gas storage space.
Shifts in the relationship between delivered LNG prices into northwest Europe and hub prices are also more closely correlated with the PVB and NBP than other European markets. Northwest European des LNG prices rose to an unusual premium to the TTF on Tuesday as strong bids from Asia for Atlantic-basin cargoes lifted offers into Europe. The des LNG discount to the TTF had already collapsed on Monday.
The PVB had the biggest price increase of all European front-month prices on Monday, rising by 46pc from the previous close and cutting its discount to the TTF to €0.90/MWh from €1.90/MWh. And the Spanish front-month contract moved to a premium to the TTF during Tuesday's session.
LNG made up two-thirds of Spain's supply mix last year. The US accounted for 45pc of Spain's seaborne supply, while Spain has several long-term LNG supply agreements. Firms may opt to deliver some of their long-term contracted supply to higher-priced markets in Asia, while the arbitrage between the Atlantic and Pacific basins is wide open for uncommitted US LNG cargoes.
The NBP front-month price rose by nearly 44pc on Monday, the second-largest day-on-day increase in Europe. Its discount to the TTF shrank to €0.05/MWh from €0.21/MWh at the previous close. And the NBP front-month contract was trading at a premium to the TTF by Tuesday afternoon.
The UK is poised to lose LNG cargoes delivered by QatarEnergy (QE) from its contracted offtake from US export terminals, as the firm focuses on honouring its long-term sales and purchase agreements previously sourced from Ras Laffan. QE has long-term regasification capacity in the UK's South Hook and Isle of Grain terminals. And there is a price signal to deliver commercial loadings from the soon-to-be-commissioned 18.1mn t/yr Golden Pass LNG export terminal in Texas — where QE owns a 70pc stake — to Asia rather than to UK terminals.
Towards convergence
In general, locational spreads changes on Monday meant that European gas prices converged, with most hubs reducing their discounts or premiums to the TTF (see table).
The price increase was less pronounced in countries less dependent on LNG. The German THE front-month price's premium to the TTF shrank by €0.40/MWh, while the Austria VTP's premium to the Dutch hub fell by €0.74/MWh.
In Italy, the PSV front-month price shed €0.30/MWh of its premium to the TTF. High underground stocks relative to elsewhere in Europe and some Qatari LNG deliveries already en route to Italy partly explain why PSV prices rose by less than other markets.
| DoD changes to TTF M1 bases | €/MWh | ||
| Monday | Previous session | Change | |
| TTF-Austria VTP | 1.700 | 2.440 | -0.740 |
| THE-TTF | 1.155 | 1.550 | -0.395 |
| NBP-TTF | -0.050 | -0.205 | 1.073 |
| PSV-TTF | 1.450 | 1.150 | 0.300 |
| PVB-TTF | -0.900 | -1.900 | 0.900 |
| Peg-TTF | -0.935 | -1.400 | -0.465 |
| ZTP-TTF | -0.500 | -1.175 | 0.675 |
| M1 DoD change on 2 March | % |
| PVB | 46.2 |
| NBP | 43.6 |
| Peg | 42.5 |
| ZTP | 42.5 |
| TTF | 39.0 |
| PSV | 38.5 |
| THE | 35.8 |
| Austria VTP | 34.0 |
