Energy Market Update - Tuesday 28th February 2023
In the news this week
Russia has renewed calls on Sweden to share its findings from the ongoing investigation into the explosions that damaged the NordStream pipelines last year. Sweden and Denmark have confirmed that the pipelines were intentionally blown up but have not yet said who may be responsible. This has prompted the Russian foreign ministry to question whether Sweden has something to hide, effectively reiterating the Russian stance though without providing evidence, that the explosions were carried out by a Western nation. The U.N. Security Council will meet on Tuesday to discuss the blasts after Moscow asked for an independent inquiry. This news is unlikely to have an impact on the direction on gas markets, but it does highlight how it is unlikely Russian gas will resume flowing into Europe at any great volume any time soon.
Reports indicate that Russia is planning on cutting oil exports from its Western ports by up to 25% in March, vastly exceeding the previously announced production cuts of 500,000 bpd. It is thought this is being done in an attempt to lift the price they can get for their oil, following the introduction of the G7 price cap. Russia have so far managed to reroute most of its oil exports to India, China and Turkey, but U.S treasury officials argue that the decision to cut oil production further from March reflects their inability to sell all of its oil. Washington has said it pushed for the introduction of price caps to limit revenues for Russia's war in Ukraine but have set them high enough to avoid another spike in global oil prices. This news will likely provide upward pressure signals to Brent crude oil markets on reduced future supply.
China Gas Holdings (CGH), which is one of China's largest gas distributors, have agreed two new 20-year Liquified Natural Gas (LNG) supply agreements with U.S. based exporter Venture Global. The agreement is for CHG to buy two million tonnes per year of LNG from Venture Global under two contracts, with supply beginning in 2027. The gas will be sourced from two new projects in Louisiana, while prices will be linked to the U.S Henry Hub gas market benchmark. The agreement will also allow CGH to trade the LNG on the global market if some of the gas is not required in China. This new agreement is in addition to several large deals that Venture Global already has in place with firms in China. This news once again highlights how LNG dependent nations are now placing much greater emphasis on getting long-term supply agreement in place, instead of relying entirely on the spot market.
Current Market Drivers
24 LNG cargoes have been delivered in Feb-23, with 10 confirmed for Mar-23 so far, bolstering supply prospects and offering downward pressure to near curve UK gas contracts.
1.2 GW of nuclear availability was brought back on over the weekend, offering a downward direction to prompt UK energy contracts, on reduced gas-for-power demand.
Norwegian flows to the continent are remaining strong, with no unplanned outages at this time. This is providing downside to near curve UK gas contracts on greater supply prospects.