East Asian Heat Raises European Gas Benchmark

Last Friday, NBP (National Balancing Point) gas prices saw a small increase despite fuller storage in the UK. Most curve contracts rose, with the Winter 24 front-season gaining 1.5p/therm (0.05p/kWh). The increase in East Asian temperatures has most likely had a direct effect on the European energy market.

What does this mean?

The increased demand for LNG (Liquified Natural Gas) is in response to the extreme heatwave seen in East Asia. With temperatures hitting 40°C, the Japan Meteorology Agency issued heatstroke alerts. As the largest importer of LNG globally in 2022, Japan’s increase in gas-fired cooling demand has increased the European TTF (Title Transfer Facility), a price benchmark for natural gas.

The British government denied that Energy Secretary Ed Miliband ordered an immediate North Sea drilling ban. The Department for Energy Security and Net Zero reassured that no official decision regarding new drilling licenses has been made. The government confirmed its policy of stopping new exploration licenses while managing current oil and gas permits until they expire. They aim for a balanced transition into the sector, working with the North Sea.

High storage levels remain in the UK which may have capped high gas prices, especially for near-dated contracts. Supported by strong flows from Norway, Gassco indicated that gas nominations into Britain’s Easington and St Fergus terminals met just under 40% of actual demand. Last year Norwegian exports were constrained by extended maintenance, resulting in a 25% increase from that period.

Summary

Last week, the energy market edged higher as a result of the East Asian heatwave, which increased the use of cooling systems and pressured gas demand. Because gas storage in the UK is particularly high, this could have potentially capped gas prices from being much higher. On Monday, gas prices started with a bearish sentiment, with most contracts offering approximately 1p/therm (0.03p/kWh) below their previous settlement.