Europe enters winter with its lowest gas inventory of the 2020s, while LNG prices sit above $30 per MMBtu. Rystad Energy says weather, Middle Eastern supply and El Niño could push prices either way, while US prices are expected to remain relatively insulated.
LNG prices are above $30 per million British thermal units (MMBtu), and gas inventories are markedly lower in key markets, according to Rystad Energy. Further rallies are not a foregone conclusion, though. A recovery of Middle Eastern LNG supply and weak power and heating demand could pull prices lower.
Europe pays to keep the arbitrage closed
Europe enters winter with the lowest gas inventory of the 2020s, just as the lack of Middle Eastern LNG in the Pacific basin intensifies competition for US cargoes. The continent will have to pay dearly to keep inter-basin arbitrage closed, and hope for a mild winter to limit demand.
Northeast Asia, by contrast, likely faces a mild winter, which weighs on heating and power demand. LNG at $30 per MMBtu or more discourages gas use and boosts coal burn, and improved nuclear availability further dampens demand in Japan and South Korea.
US prices stay insulated from the global rally
Meanwhile, after hovering near $3 per MMBtu all summer, Henry Hub is expected to peak around $4 this winter. Strong production and healthy inventory going into the season keep prices subdued, while highly utilized liquefaction capacity isolates the US natural gas market from the global rally.
El Niño and Hormuz are the swing factors
El Niño, the warm surface water in the central and eastern equatorial Pacific, is expected to weigh on overall gas demand, but it offers no guarantee against cold spells. It can also lift regional demand through droughts, and Colombia and Brazil are the clearest X-factors because their power generation relies on hydro.
The Strait of Hormuz, the outlet for LNG from Qatar and the UAE, has been targeted repeatedly in the Middle East conflict. Transits stabilized in October, potentially allowing an LNG supply recovery by 2Q27, but output is always one escalation away from cratering again.
Upside risks are a cold snap in low-storage Europe, an El Niño-driven drought in Latin America or renewed disruption in the Gulf. Rystad Energy says market participants should plan for a wide range of outcomes rather than a single base case.
Source: Oilprice.com
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