Although European spot gas prices have fallen 14% since the beginning of May to USD 297/kcm (USD 8.42/mmbtu) it is worth remembering that LNG markets are tightening quite sharply, so far as Europe is concerned.
Japan’s last operating reactor was shut on 5 May and gas fired power plants are running flat out to help make up for the loss of nuclear capacity. There is no visibility on when any of Japan’s nuclear capacity might return to service. Japanese LNG imports are up 15% YoY for the year to March, which follows a record 113bcm of LNG imports in 2011, in the wake of the Fukushima disaster. LNG demand in other parts of the world outside North America is also robust. Consequently, Europe is seeing its LNG supply fall as it is not price competitive. Spot LNG into Europe is currently assessed by WGI at USD 436/kcm (USD 12.35/mmbtu), a 31% discount to the USD 632/kcm (USD 17.91/mmbtu) it is bid at in Asia. European LNG imports weakened in the second half of last year and are down 29% YoY for the year to February, equivalent to 5bcm.
Overall gas demand in Europe dropped sharply in 2011, falling 9% for OECD Europe to 509bcm, largely due to the warmer winter but also because of weak industrial conditions. For the year to February, gas demand is up 0.8% YoY or by 1bcm. OECD European production has increased 0.6bcm YoY for the year to February but mainly because Norwegian production increased 2bcm YoY, which was also 1bcm above the Norwegian Petroleum Directorate’s forecast. Lower LNG availability is likely to keep pipeline import demand high while, if Norway’s production sticks to plan, the demand for Russian imports might yet prove a pleasant surprise this year.