From a fundamental point of view, the picture for the first half of October is bearish. The gradual return of Norwegian gas supplies and a warm start to winter suggest a relaxed first half of October on the gas markets.
However, it is uncertain how the LNG supply will develop; signals are coming from Asia that speak for an increasing LNG demand there. In addition, gas production in Groningen will end on October 1 and the plant in Zuidbroek will replace part of the lost production with pseudo L-gas.
End of Groningen gas production
The Dutch government has confirmed that gas production at the Groningen gas field will cease on October 1. This winter, operations can only be restarted in emergency situations during “extreme cold” and on a small scale. Final closure is then planned for October 2024.
This will mark the end of the era of gas production from what was once Europe’s largest gas field. In the winter five years ago, daily gas production was still over 1500 GWh/day. At the beginning of the year, daily values fell to below 500 GWh/day and continued to fall gradually throughout the year to below 200 GWh/day at last count.
We do not expect a bullish effect on gas prices. It will be exciting to see whether the new plant in Zuidbroek, which blends nitrogen and H-gas to pseudo L-gas, will reliably produce the planned volumes from October 1, 2023, to meet the Netherlands’ export obligations in winter.
After an agreement was reached between the Alliance of Australian Offshore Workers and Chevron, the strikes in Australia have ended. According to the operator, the past strike did not cause any disruption to LNG shipments.
Norwegian gas supplies are gradually recovering and the maintenance period is coming to an end. On Thursday, maintenance-related outages were still around 100 million cubic meters. By the end of next week, the restrictions are expected to decrease to around 30 million cubic meters.
Weather forecasts call for above-average temperatures during the first two weeks of October. In the next week, daily averages in Germany are expected to rise again to up to 19°C, around 6 degrees above the seasonal norm. For wind power production, we expect grid output of around 15 GW at normal levels in Germany over the next two weeks. Solar power production is expected to be up to 8 GW, around 2 GW above the seasonal norm.
LNG demand picks up in Asia
Signals are coming out of Asia that could indicate rising LNG demand in the near future. Japanese LNG storage facilities are below average. Japan has imported 70 LNG cargoes so far this month. To replenish inventories, Japan is expected to increase its LNG imports in October compared to September.
China’s Unipec, a subsidiary of Asia’s leading refiner Sinopec, has purchased more than 30 LNG cargoes for delivery from October 2023 to the end of 2024 under a tender to meet winter demand and increase trade inventory.
India’s largest gas utility GAIL has tendered one LNG cargo for delivery in October. These activities and factors supported Asian LNG prices recently. On the Asian JKM, front-month Nov-23 was last quoted at USD14.60/MMBtu, more than USD2/MMBtu above the ICE LNG Spark Future for Northwest Europe.