Strikes, little gas from Norway, rally in LNG freight rates

The intensification of the strike in Australia and the extended maintenance work in Norway are causing gas prices to rise again this week. On the German THE, day-ahead rose to over 38 EUR/MWh at times, around 7 EUR/MWh more expensive than in the previous week. On the forward market, Cal-24 rose at times to as much as 54 EUR/MWh, up to 4 EUR/MWh more expensive than in the previous week.

Strikes in Australia and low gas flows from Norway

Strikes in Australia began Sept. 8 and are now expected to expand to gradual all-day work stoppages between Sept. 14 and Sept. 29. This affects all three Chevron facilities with a total capacity of 24.5 million metric tons of LNG, or about 5-7 percent of global LNG supply.
While the strikes have not affected exports so far. However, European traders are concerned that Japanese and Chinese buyers may increase their purchases of spot cargoes, depriving the European gas market of important spot supplies.

Norwegian gas supplies remain at historically low levels this week. Nominations from operator Gassco stood at 144 million cubic meters on Thursday. The reasons are unplanned maintenance work at the Dvalin and Aasta Hansteen gas fields on the one hand, and multiple extensions of maintenance work at the Troll field on the other. At times, maintenance-related outages exceeded 200 million cubic meters.

Declining injections

Gas storage facilities in Germany and the EU are around 94 percent full. This means that the storage level in Germany in particular has improved by only 0.3 percentage points since the beginning of the month.

Total net injections in Germany in the current month total only 1300 GWh, while the maximum daily injection capacity in Germany is 4265 GWh. This means that 78 percent less has been injected so far this month than the five-year average.

Reasons for the low injections are on the one hand the fallen gas imports from Norway and the expiring gas production in Groningen. On the other hand, with the higher levels of gas storage, the maximum possible injection capacity falls below the technical maximum values (in some storage facilities to up to 20-30 percent).

Increased LNG freight rates

In response to reduced European storage flexibility, freight rates for LNG shipments increased in price earlier this year. Freight rates generally follow a seasonal pattern, peaking in the winter months.

In April to August of the current year, rates were around USD 50000/day, and last winter rates rose to all-time highs of over USD 450000/day. Most recently, the rally started unusually early for the month of September with rates as high as 150000 USD/day.

The record high storage levels have made alternative and more expensive storage options viable. One such alternative is floating LNG supplies on later-dated winter Winter Contracts. Weak demand in September and October could then lead to significantly higher LNG imports again in November. again lead to significantly higher LNG imports in Europe.

On the one hand, this is a safety net for European gas supply in the event of an early cold snap. On the other hand, a price driver. LNG ships will only start calling at European ports until prices at the terminal sufficiently compensate for the high freight rates.