
Plugged In: the energy news podcast
Coming from the heart of the Montel newsroom, Editor-in-Chief, Snjolfur Richard Sverrisson and his team of journalists explore the news headlines in the energy sector, bringing you in depth analysis of the industry’s leading stories each week.
Richard speaks to experts, analysts, regulators, and senior business leaders to the examine not just the what, but the why behind the decisions directing the markets and shaping the global transition to a green economy.
New episodes are available every Friday.
Plugged In: the energy news podcast
Show me the gas demand!
Europe’s gas market looks set to remain oversupplied this year with prices likely to be close to record lows.
In this week’s episode gas analyst Wayne Bryan questions where the demand will come from to absorb unrelenting flows of LNG and piped gas.
Host:
- Richard Sverrisson, Editor-in-Chief Europe, Montel.
Guests:
- Wayne Bryan, gas analyst,
- Nathan Witkop, Germany correspondent, Montel.
Hello listeners and welcome to the Montel Weekly podcast, bringing you the most topical energy matters in an informal setting. My name is Richard Sverrisson. I'm joined today by gas analyst Wayne Bryan, formerly known as Wayne Alfa. Uh, also participating on the pod is my colleague Nathan Witkop, correspondent Germany. Welcome to you, Wayne and Nathan. Thanks, appreciate. Good morning Richard. Welcome back Wayne. I'd like to start by looking at the situation now. At the beginning of 2020, just a few weeks ago, the situation looked quite different. If you could just give us a brief summary of kind of the last weeks of December.'cause it was quite, quite eventful, wasn't it, Wayne?
Wayne Bryan, gas analyst:Yeah, well it was quite a lot happening indeed last week of this last couple of weeks of December. And even the runup prior to that, and of course everyone's concerns was around. The Ukraine, G Pro EU mediated talks. Now, as I said to you, probably several months before, I always thought it'd be signed. And it would go until the last minute. And that's what we saw. We got the official announcements sort of right on the right on the end, really of the year. That again, made a lot of market participants relieved. And we saw the effect on prices. And we can see that effect right now. I think that concern. Even if the transit deal wasn't signed, I still think short term supply wise would've been in a good position. There've been some strategic placement of gas by gas from different parts of Europe. Also, with the storage not just gas, but LNG storages at record levels. Renewables are growing demand. It's still pretty weak. I mean, we are now what, January 9th today, and it's, it's quite mild still sun shining, um, not just here, but across North West Europe. The weather hasn't seen any real ramp up in LD Z. Demand, so I think we'd have been in an okay situation, but now we're in a much better situation, obviously. Any concerns around that deal dissipated and we're now seeing the flows slowly start to ramp up via Ukraine and to Europe. So I think yeah, compared to where we're on say, deck 28, 20 ninth, yeah. Yeah. We're in even better position. I
Richard Sverrisson, Editor-in-Chief Europe, Montel:think there's a number of points that you, I'd like to, to you to elaborate on. When could you just. Start off by saying what happened to prices, quite literally because there was quite a spread between what was happening in the prompt or the day ahead and the forward prices. Yes. Yeah. So could you just for those listeners who may be unaware of the actual numbers here?
Wayne Bryan, gas analyst:Well, I think, I think the relief there was, I mean, I always said there was a good 10% or so, five between five and 10% depending on the contract. Worth of risk premium. I mean, you saw Q1 the risk started rising for Q1 contracts, which then fed into the summer. I think as well, when you look at the summer contracts, they were more concerned about what was gonna happen. If we didn't get the deal signed, we're then gonna have to drain the storages and we're gonna move into summer with storages potentially below where they were. So that was quite interesting. And looking at what happened with Q1, as soon as that deal was announced, you saw the prompt, the front month, and everything just completely tumbled. Once that gas was confirmed to be coming through from Jan first, we just saw, I mean the, not just the, the prompt, but the summer contract UK MBP Dove, below 30 pence per, you know, a lot, we saw a lot of change, not just in the UK but also in TTF prices as well. And now you look at where the market is now, it's kind of positioning itself at is probably where it is now, is, uh, probably the price it should be at. Mm. But however, they'll, there is still some concern, especially what's going on geopolitically, the French new situation. Weather can always switch. And also there's always a concern. I'm always been like that as well. Looking at any cuts in, uh, pipeline flow, especially from the Norwegian side of it. I mean, again, the price is getting that cheap. Now, will we see some commercial reductions? However, again, looking at. Them wanting to keep the market share, et cetera. I still don't think we are gonna see that at the moment, but there's still always concerns. But where we are now, I think the market is in the correct place. When you look at the price structure
Richard Sverrisson, Editor-in-Chief Europe, Montel:you just mentioned LDZ, for those listeners who may not be aware of that abbreviation, could you just,
Wayne Bryan, gas analyst:It's domestic heat in demand, so yeah, purely looking at, in the uk looking at, and also you could use that, but looking at domestic heating demand, which of course counts. Especially in the uk as the biggest demand side of UK gas and in France, obviously it's electrified, so it's a bit different. Other parts of Europe, maybe coal and gas, but LS had demand or domestic heating requirements. Regardless of the country are way below the levels we used to seeing,
Richard Sverrisson, Editor-in-Chief Europe, Montel:but we saw the supply from the Ukraine into Slovakia dip quite significantly. At the start of this week or late last week. Yeah. What would the, and, but. What are the reasons behind this? Well, some people
Wayne Bryan, gas analyst:think it's storage requirements refilling of some storages again, but again, I think. It was a case of slowly building it back up. And I think, so it caught quite a few people in the market a bit by surprise. And again, the old fear factor kicks in, so then we saw, you know, prices start to rally again. But I mean, I spoke to a few people about that. We were always confident it was slowly gonna ramp up and as we're seeing that today.
Nathan Witkop, Germany correspondent, Montel:Yeah, no, I was just going to get back to that risk you were talking about earlier with the that there would be no deal. So I think that was one of the main justifications for why we had such. Higher forward par prices relative to the near term prices. Maybe you can talk a little bit about what's happened now. What are the spreads telling us right now about, you know, where we're at in, in the middle of winter? Yeah. Compared to somewhat like how normal are these, these prices that we're
Wayne Bryan, gas analyst:seeing, the spreads now are telling us that what we are fearing or say what we're fearing is what we think is gonna happen is it's gonna be a similar situation to last year. We are gonna go into the summer with storages and overhang. And again, where does that where does that excess gap, where does the gas go this summer? If we go in with storages, I don't know, 70, 80, 90%. Again, the requirements for the following winter, we are not gonna need to fill storages again. So for me, looking at the market now, it's positioning itself for things to go as planned now for the next few months. What people are talking about weather, there's no beast from the east of the present. I, no, weather can change very quickly, but looking at, been looking at some of the forecast there's still no real. Sight of any sustained cold snap. Also, as well looking at related markets, carbon sort of stabilized now. There was some reports of it maybe being hit in 50 60 this year, which I, I don't, I still don't see how that could happen. All prices now, we saw it fall again, 5% yesterday, so that'll affect some of the forward contracts. But I think we look at the spreads now. The market's position for this oversupply to continue and the closer we get to the end of March without any significant events and what I mean, events, I mean, could there be a beast from these? Could there be a situation where there's a pipeline concerns or flows start to get cut? Could there be a geopolitical issue? And we, I mentioned that to you guys a bit earlier, talking about what could happen with the straight up for mu, et cetera. So, discounting that. I think what we'll see as we get, as we get tick off each month, so to speak. We're gonna see the prices again start to dip a bit low. But there is a flaw, obviously. I mean, we are not gonna see 20 pence, some of gas. At some point we might have to see some optimization of flows just to keep the price. We've seen it before. If you look back in history at the charts, you can see a lot of it pain points for producers where things may have to start getting cut just to really get that demand back up again and get that price to rise back up. But like I said, I think where it is now in terms of across the curve. Prices are pretty much where they should be. If you look at the overall
Nathan Witkop, Germany correspondent, Montel:fundamental picture to interject with some European prices, then in terms of euros, a megawatt hour. Mm-hmm. I mean, we've got prices I think for the, for the front month, around 12 euros, a megawatt hour, and, and that's very similar to like day ahead prices. Yeah. And also similar to summer, which seems crazy white. It does seem
Wayne Bryan, gas analyst:crazy. Yeah. Again, because before we, if you look at the, the markets that there was always a spread thinking about what's gonna happen in the summer. Thinking about fillage and storages making that price a bit higher, the flattening of the curve or the narrowing, the spreads indicates confidence.
Nathan Witkop, Germany correspondent, Montel:Yeah. So
Wayne Bryan, gas analyst:we could see sub 10, I mean, I think I've said it last year at some point where. I think we see sub 10 pound, uh, megawatt hour TTF, and it happened and I think it, it could happen again. 10. 10 euros sub. Yeah. I think it went to nine 80 or something. Yeah. And I think looking at where we are now, I think that, that, that's a possibility again.
Nathan Witkop, Germany correspondent, Montel:And how come winter then, like going, going further around? Mm-hmm. How can we still see this rising?
Wayne Bryan, gas analyst:Where's the expectation? There's always risk in winter. I mean, let's be honest, winter's still a long way away. There's always risk in winter, whether that be weather risk. Supply risk, you know, storage concerns, LNG concerns, which I don't think will happen looking at the way the market is now. So there's always risk premiums in winter, and you always, if you look at the curves, you'll always find as you get closer to that winter point when a lot more of the fundamental data becomes available and a lot more succinct, that's when you see the price start to fall. It happened last winter with the winter contracts. You saw a real fall as we came towards the end of that, uh, expiry day.
Nathan Witkop, Germany correspondent, Montel:And has it really all been about. The LNG that has arrived in Europe in this past 12 months. It's had a
Wayne Bryan, gas analyst:massive impact. I mean, we spoke about it for years. I think we, we were, where is this LNG Club waiting for it to happen? And it, it finally appeared. It's finally appeared now. And when you look at the major players involved now, Australia. They're ramping up and forecast to be the number one exporter this year. You look at the US and we all know what's happened there with Donald Trump and his Freedom Gas, and then you've got the Qataris now who before could sort of not dictate, but they've kind of had a, a bigger impact now. Yeah, they're gonna have to now, you know, not accept price is the wrong word, but they're gonna have to try and compete. They've now got proper real competition. Good. Because, especially into Northwest Europe.' Richard Sverrisson, Editor-in-Chief Europe, Montel: Aussies to top the last year. Last year, correct. Yeah. But I think it'd be interesting to see now what happens in the standoff between the US and Iran. Yeah. We are in a very uncertain phase of this kind of oh, very uncertain of this conflict. So, and I think. If something happens, especially on the straits of whom or moves, how, how do you think this will play out? And certainly for Qatari, Qatari, LNG, I mean, a lot of it could be locked in. Yeah, a lot
Richard Sverrisson, Editor-in-Chief Europe, Montel:of it. And
Wayne Bryan, gas analyst:again, yeah. I mean this for me is one of the biggest concerns at the moment, and I know if you watch the news reports or watch Trump's press conference yesterday, sort of dialed down the rhetoric. The Iranians sent a few missiles. That's them saying, okay, we've, we've got some revenge. They said that several US service members were killed, which obviously didn't happen. That wasn't the case. But they've sort of placated their massives, so to speak. So maybe we will see it dial down. They know they're not in a position to really challenge America, especially with someone. As I was talking to someone about this morning, that someone as volatile as Donald Trump. I mean, I, two days ago he was talking about bombing religious sites and stuff. Yesterday he sort of. Took a step back from that. Mm-hmm. He said, the Iranians are dialing down. We are dialing it down. So I think we we're gonna see a, a slight stability, but for me there still has to be some risk, uh, quite strong risk that something's gonna happen. The person that was taken out, so to speak, was literally the number two in Iran. You saw that Ayatollah went to his house to deliver a sermon, which doesn't happen. So I'm still not convinced that Iran have finished. I'm still not convinced By that, I mean, they, they might say that, but I'm still not convinced. And we saw that jet that went down and there's. Now to, was that a stray missile?
Nathan Witkop, Germany correspondent, Montel:Mm-hmm. I mean that, that risk premium and where, where might sort of affect prices at all, I imagine is, is further out on the curve in terms of oil indexation Yeah. Blah, blah, blah. But, uh, I mean the, the near term, the fundamentals are telling us that we're quite satiated. Right. That we've got correct. Right? Mm-hmm. So if anyone's got a risk of being locked in, I guess it's. It's the US production isn't it? Isn't Is that the The prices? Yeah, the prices. Yeah. I mean some, so next quarter could we actually see our US LNG stop showing up in, in Europe? Because they're still bringing new they they still bringing lots.
Wayne Bryan, gas analyst:Yeah. And I think, I don't, it depends as well on each producer in their different margin actually. But I still see if you look at the Henry Hub price as well, I'll still see. A continuation of L Nng and I think some of it might not even be price sensitive. It might be coming from higher up driven by people like Donald Trump talking about his Freedom Gas. Mm-hmm. You could imagine him saying, I don't care if you're losing a bit of money, let's get that gas into Europe. Let's try and, you know, keep the Russian gas away. Which is obviously not gonna happen now, but that was always why they're trying still to sanction nor stream two. But I understand now another companies coming to lay the final bits of pipe. So I think US Gas is, is here to stay for the, for the time being. Um, you've seen it come in when the prices were low. You've seen it still come into Europe in abundance. So I don't think at the moment US gas is gonna be disappearing anytime soon. And also in terms of market share, again, that's again, quite important to them.
Nathan Witkop, Germany correspondent, Montel:But just before we kind of started the podcast, you're, you're talking about your concerns about demand. Like where's the demand gonna come from to, so if, if demand stays weak. Surely there has to be some kind of supply response somewhere, so,
Wayne Bryan, gas analyst:correct. Yeah, I did. I mean, I was alluding to that earlier. That's one of my concerns of, of this, of the next few months, where is that demand gonna come from? And at some point, like I said, not even in, just in gas, but in LNG, there's a, there's a, you know, there's a producer pain point where once they hit that pain point, they're gonna start easing off on the supply. That's why I don't think there's a massive more amount of downside. In both markets are present due to where we are. Uh, we are very low across, across the curves in LNG pricing and gas pricing.
Richard Sverrisson, Editor-in-Chief Europe, Montel:But I mean, it's all pointing downwards here. I mean, where, where are the bullish elements? I mean, potentially it's all, potentially, it's all potentially at the
Wayne Bryan, gas analyst:moment. It's all, it's all the old classic, hypothetical risk.
Richard Sverrisson, Editor-in-Chief Europe, Montel:Yeah.
Wayne Bryan, gas analyst:Where is it coming from? And like I said, Lang lead might, you know, go down again, forties pipeline happened in the uk, might crack again. And these are all what ifs at the moment. So you're correct. I don't really see. A massive amount of bullish concerns at this moment. I'm not saying I'm, you know, I'm not saying I'm completely 100% bearish 'cause I never am. However, looking at where we are now, the scales are firmly in the, in the Bear's favorite at the moment.
Richard Sverrisson, Editor-in-Chief Europe, Montel:And you alluded to one of our old favorites, the world card of the French nuclear. Yes. So if we get, you never know, really something could happen there because we've got a period of. Of 10 year inspection, fourth, 10 year inspections happening this year. Exactly. And who knows what that might unearth, you
Wayne Bryan, gas analyst:know? So that's always been a, it's always a concern for me. And toward, towards, I think it's towards the end of last year, we had that concern about a lot of these reactors having different problems. And I know that's ongoing. This is where we need Chris, I reckon, French expert because there is more concerns now. And I was speaking to him earlier in, towards the end of the year about that. And he was saying, yeah, there's still, as we know, there's more inspections due and. There's always that uncertainty. With French nuclear, you can never quite be certain that it's gonna be our turning at a consistent level throughout the year. And again, if we lose a lot more of that for a sustained period of time. There's a lot of gas gonna be used for power demand across or for power generation across Europe. So that's always a real, that's always high on my list of concerns. Is the French nuclear situation.
Nathan Witkop, Germany correspondent, Montel:What about the role of Asia in all of this? Because I mean, it was, it was kind of the absence of that continued growth in Asian demand last year that saw a lot of that new supply having to be forced to Europe. Is there any sign that. That Asians are gonna be resuming their,
Wayne Bryan, gas analyst:not at the moment. If you look again, it's, and again, I've said this before, it's a very similar situation to Northwest Europe in terms of what happened to their market. Again, they typically, in the winter soak up a lot of supply to fill their storages, like Europe, their storages already full. Again, typically there's a lot of heating demand over the winter period. Again, temperatures in the major demand centers of Seoul, Beijing, and Tokyo. Weather was warm. They didn't experience as of yet a real sustained spell of cold weather. So that's impacted them, not only in terms of filling the storages, but soaking up the supply.'cause their storages are so high. I saw reports of Chinese buyers reselling cargoes or you know, cargoes that they're already previously purchased. They're now reselling them because where do they put it? Their storages, as they say, are topped. They've got topped out storages across Asia. And even with the coal to gas switching. Renewables of growth is something you need to take into account. They're building some of the biggest renewables globally in terms of wind. In terms of the new dam, that new three dams they're gonna be building. So again, that's taken away more demand from the gas sector. They're also And the power of Siberia.
Nathan Witkop, Germany correspondent, Montel:Yeah, exactly. They're also intent on building out their domestic production. Right. Diversifying their supply. Exactly.
Wayne Bryan, gas analyst:I think now they've got, they've started to build some stuff, but they're just lacking in infrastructure in terms of, you know, in pipelines they've built some infrastructure where the power of Siberia comes in. There's not big gas demand there. So they need to get that down to some of the industrial big gas users. But again, it's not. It's not happening at the moment. So that's also the Asian side of it is also having impact and the trade wars. Trade wars have impacted, you know, production, trade wars have impacted a lot, not just in Europe, but also in Asia as well. So their markets are in a similar situation to us. And their also benefiting not only from supply, from the para Siberia, but also supply from Australia, who, as we know are probably gonna be the world's number one exporter by the end of this year. They're sending a lot of gas to China as well.
Nathan Witkop, Germany correspondent, Montel:So I remember at the beginning of last year was when we first started to hear people start to say, oh, well this tight LNG market, maybe it's not actually so tight. Maybe it's gonna be loose for a little while. And then they started to push back their expectation. I, it could be loose until the end of the year. I could be loose. Next year as well. Yeah. When do you see the tightness emerging?
Wayne Bryan, gas analyst:I agree with that as well. And I think if you look at a lot of projects, I think there was the record in terms of projects that went through FID last year in terms of, we don't got the exact number, but there, it was a record. It broke the record. I think it hadn't happened for about seven or eight years where we saw that many projects pass FID and a lot more million tons per annum were added. So where does it, where does this demand come from? And this is what I said to you guys before we started. One of my main concerns where's demand coming from at the moment?'cause at the moment we don't see it not just in Europe, but also in Asia as well. We don't see maybe, maybe an improvement in economic conditions might help. Some severe weather would help. Maybe an LNG supply issue, which again, production is ongoing. New facilities are opening Cove Point, they're opening consistently in, in the US and Australia as well. So for me. At the moment, I, I couldn't tell you where I think that demand will come from. I still think this market will stay loose. People are talking about 2022 with gas demand rising, we might see a bit of tightness, the German situation, et cetera, phase out of coal across a lot of places. Might see a resurgence of gas demand where we might see some tightness, but a lot of these people now are producing. Or looking to expand facilities in anticipation on what's gonna come out from the German side of things. So it
Richard Sverrisson, Editor-in-Chief Europe, Montel:seems more kind of hope than expectation. Yeah. Hoping you know, that's, that demand will come from somewhere. Yeah. But again. You, you, you mentioned, we were talking about Asia, but there's, what we see from Asia is increased supply. Yeah. I mean, Turk streams come on. Yeah. Can't come on. So what's the impact of that, for
Wayne Bryan, gas analyst:example? Well, that again, is gonna impact, we've got more gas coming into Southeast Europe. And again, any, any or that part view any more concerns coming from them? If they had any supply issues, it, it would've been a drain on supplies from Northwest Europe, but now more supplies coming in via that route. Again, it tempers demand from that side of it as well. So it's just another, there's so many more supply sources now and diversification in supply and will nor stream two happen this year as well. Some people say it will happen into Q2. That's another thing to talk about as well. Even more gas coming into Europe. Again, where is that demand coming from to soak up all this excess gas? And again, we always resort back to it, but the storage is, they're still nearly full. They need a real dream to make the summer alluding back to previous question as well, to make these summer prices start to react and be nervous about perhaps massive injection demand in the summer, but at status quo remains. We are gonna see this continue with
Richard Sverrisson, Editor-in-Chief Europe, Montel:this ongoing supply. Gluts. How is this, especially in terms of LNG. How has that transformed the market in terms of the trading of this commodity? I mean, you were talking a little bit about this before we started. I mean, I think that's a very interesting point here. Yes. Could you, could you elaborate on how, how this, you know, this, this incredible oversupply has, has impacted Of
Wayne Bryan, gas analyst:course. Well, now we're seeing LNG futures being traded a lot more. The market is now becoming less dependent on the long-term supply. The old school long-term supply contracts, they're more, not think of the past, but. People now want more things on the spot. And that's been reflected. If you look at the churn rate, which is the amount of times the contract is bought and sold before it's delivered at the moment it just hit well just towards, uh, the end of last year. We saw it hit 10 to one in the LNG market. Now 10 to one signifies a liquid market. And to put that in comparison, the churn rate for TTF is 25 to one, and the churn rate for crude oil, which is the most traded con, is a hundred to one. So that also for me was a big sign that we're moving, that market is changing faster, more dynamic, more supply demand, responsive. And again, that'll the more the term rate increases. The more availability, the more liquidity, the more the market price increased cap will be there. It will need a lot to, to push the price above, even above $10 per M-M-B-T-U. So the term rate for me, it is a very. Important indicator of how the world is now seeing the global LNG market, not just now, but moving forward. It's gonna move. We are gonna see a lot less of this long-term contract or even oil index. LNG contracts now are starting to fall and everyone wants it on the spot because it's there. It's there. You're seeing track and ships, see a couple of ships, now you see them moving. Destination LNG was coming into grain. Oh no. Grade's pretty full. The high seas happen the same cargo then went to China. It shows you how the market is shrinking. Whereas previously we wouldn't have seen that.
Nathan Witkop, Germany correspondent, Montel:And I guess if the upshot of this is lower for longer gas prices and we've got a European Commission intent on sharpening CO2 prices I guess we're going to have an earlier demise of coal and is perhaps. Been expected until relatively recently.
Wayne Bryan, gas analyst:Yeah. For the coal market. I've always been, most coal analyst don't like me now because I've al I've said it for several years now. The coal market is dying. And we're seeing that now. A lot more decommissions happening. A lot more countries have. I've actually started cutting their coal production a lot earlier than they previously said they would obviously the price rise and the changing of the carbon market helped. And we're gonna see a lot more clean gas fire power generation. So I think yeah, it's again gonna have big impact moving forward.
Richard Sverrisson, Editor-in-Chief Europe, Montel:Wayne, there's so much more we can discuss. There is discuss. There's so much more. So I look forward to having you on the pod again and we could go into more detail and see how. See how this has all panned out. So that's about all from us this week. So thank you very much Wayne, and thank you Nathan. Thanks for having You're welcome. Look forward to speaking about this topic again. Remember to keep up to date with all our stories on Monte News and follow some Twitter, LinkedIn, and subscribe on Apple Podcasts and Spotify. Thank you and goodbye.