Global LNG supply concerns support European gas prices

15 May 2024

Gas Market

Gas prices moved marginally higher on Tuesday with the front month gaining a mere 0.42p/th, and July increasing by 0.41p/th. Supporting near curve prices was a reduction in wind power generation forecasts that will likely increase demand for gas over the next week to ten days. Larger gains were witnessed on the far curve as the winter-24 contract gained 1.08p/th, increasing to 92.63 pence per therm. News hit the market of a failure at a previously little-known LNG export facility in Malaysia. The complete failure at the facility caused concern as the JKM LNG spot market increased and pulled UK and European gas hubs higher to continue to incentivise LNG cargos to Europe. In more positive news the ramp up at Freeport LNG in Texas continued with feed gas nominations at their highest levels in 12 months.  

Power Market

Near curve baseload power contracts shook of the gains on the gas market with a fall in 2024 UKA carbon allowances pressuring June and July contracts marginally lower. However, the far curve baseload contracts did track the stronger gains on the NBP far curve, with the UKA market unable to keep a lid on the winter-24 contract as it increased by 70 pence per MWh, closing at £82.50/MWh. The Day ahead contract increased in value as wind generation forecasts tumbled to below seasonal average levels. Also providing support to the prompt market is the planned outage at two nuclear reactors which is further increasing demand for more expensive gas fired generation.

Oil Market

The front month Brent crude oil contract declined by 98 cents to $82.38 a barrel. Data from the US showed that the cost of goods and services increased strongly in April, up by 2.2% compared with 1.8% in March. The April figures imply that the inflation rate remains high, with any reduction in interest rates by the Federal Reserve likely to be delayed further. Adding fuel to the fire, the Fed Reserve Chair noted that he is not as confident that inflation through the rest of 2024 will return to the lower levels seen in 2023. High inflation leads to higher interest rates as a monetary policy to try to restrict spending and hence reduce inflation. Higher interest rates also have the impact of increasing the value of the dollar compared to other currencies, and hence oil becomes more expensive for holders of other currencies.  

Markets this morning

The UK system is balanced this morning and is well supplied with strong flows from Norway following last week’s maintenance. Despite the healthy picture gas prices are in the ascendancy this morning. The Jun-24 contract last changed hands at 73.34p/th, while prompt markets are yet to show any trades. The Dec-24 EUA carbon allowances contract has also increased in early trading, adding €1.47/tonne at the time of going to print. Crude oil markets are also stronger this morning, reversing some of Tuesday’s losses. There are expectations that report due later today is likely to show a further drawdown on US crude stockpiles.