Expectations of tight summer to ramp up restocking in European gas, LNG markets: traders, analysts

Expectations of a tighter global natural gas summer balance this year and brewing warmer temperatures could see injections ramp up faster than previously expected across Europe as players look to replenish supply with stronger gas injections and LNG imports over the summer, according to traders and analysts at S&P Global Commodity Insights.

Current gas inventories stand at 62.32% full as of April 29, after starting the injection season at 59.10% full as of April 1, above the five-year average and the strongest start to the injection season ever recorded, according to Aggregated Gas Storage Inventory data.

Historically, May has seen gas injections ramp up. Between 2020 to 2023, injection rates for April averaged around a 0.16% increase per day, while injection rates for May averaged around 0.32%. For the remainder of summer, June, July, August and September averaged0.23%, 0.28%, 0.28%, and 0.18%, respectively.

"My expectation is that they will go hard on injections in May, especially after withdrawing so much in April. However, aggregate EU inventories still managed to end April with 4.5 Bcm more gas in storage than at the same time last year. Asia is expected to have a cooler May [with expectations for a hot summer] which could pull cargoes away from Europe, but the recent jump in TTF prices has pulled cargoes towards Europe," David Lewis, LNG analyst at S&P Global said. "Norway is a big factor, if they continue to be have robust flows then Europe can inject and fill storages quickly, but if they have unplanned maintenances then prices will react and disincentivize injections in May."

A tighter LNG market could see stronger bidding interest reignite. Traders are still seeing the market across Europe tighter than previously expected with less offers in the market as sellers wait to sell into growing demand from other hubs.

European LNG imports stood at 40.33 million in 2024 so far, according to data from S&P Global Commodity Insights. This compared to the 48.44 million mt in 2023, and 45.07 million mt in 2022, over the same period.

Injection support

April is typically when the market enters the injection season, however, colder spells and a string of maintenances led to net withdrawals.

"There was couple of colder days plus (an) outage in Norway, so some companies decided to do withdrawals," said an Atlantic-based trader. "It was visible based on TTF DA/MA spread. But now things are back to normal."

With heatwaves already hitting Asia ahead of the expected cooling period over the summer, and limited additional capacity entering the market this year, sources expect that European players could rush to replenish supply ahead of any significant price hikes.

The injections going into May are expected to pick up due to warmer temperatures, which would limit the need for withdrawals for heating. Although Europe, especially the Mediterranean, has some gas demand for cooling needs, it is not nearly as heavy as the heating demand.

"Record season-ending European gas storages remain the predominant fundamental force in global LNG markets. However, emerging bullish trends could help keep prices supported through the summer," analysts at S&P Global said in a report. "Japanese storage is at its lowest level in over three years due to cooler than normal weather in March and the curtailment of Freeport LNG supply."

Additionally, Egypt could purchase an incremental 14-18 LNG cargoes this summer to meet a domestic gas shortfall.

"Demand is low, supply is not really affected by any outage or disruption, and temperature is 3 degrees higher than normal according to the latest predictions so yes, injections will be higher," said an LNG trader.

Narrow contango

Despite high inventories, some market players expect a bullish Q2 due to the looming risks. The summer period is typically when the pace of injections increases due to the EU mandates to fill up storages to 90% by November. The EU reached this year's 90% gas storage target on Aug. 16, some 11 weeks ahead of the EU-mandated Nov. 1 deadline.

"I think that there are a lot of bullish factors to monitor this summer.... Most US and Qatari feedgas points are underperforming, and Asian demand is strong," a gas source said. "But looking forward, I don't think we will have any issue reaching full storages by the end of the year. If it's not 100%, it will be 96% or 95% in the worst case."

For now, traders are eyeing the contango in the gas and LNG markets to decide when to ramp up injections further. A wider contango is needed to incentivize injections into storages, as traders will stock up now to make the most of the higher prices in winter. Although the contango remains much narrower than this time last year, traders are still expecting injections to avoid any supply insecurities.

Platts, a part of S&P Global, assessed the Northwest European LNG marker for June at $8.73/MMBtu on May 1, while the Dutch TTF month-ahead gas hub price was assessed at Eur28.555/MWh, or $8.947/MMBtu.

This put the TTF gas hub month-ahead price at a discount of $1.714/MMBtu to the Winter-24 contract. While the Platts DES NWE LNG was at a $1.449/MMBtu discount to Winter-24.

Comparatively, the TTF-winter contango stood was $5.791/MMBtu on April 28, 2023, while the NWE LNG-winter contango was $5.406/MMBtu this time last year.