Industry Trend Analysis - European LNG Imports To Strengthen From Q2 - APR 2017

BMI View: The start up of over 40 mn tonnes of LNG liquefaction capacity over 2017 will weigh on spot prices from Q217. LNG will be more competitive with Russian gas supplies pulling more cargoes into Europe than in 2016.

Russian gas exports into Europe were the highest on record over 2016, reaching 179.3 billion cubic metres (bcm). While a colder than average winter and reduced European gas production were partly responsible, price played a fundamental role as Russian gas contracts were cheaper than European hub prices over much of the cold snap. This is largely down to the six-to-nine month lag in the oil product-linked Russian gas contract, which are yet to reflect the step up in oil prices following the November 2016 OPEC/non-OPEC decision to reduce oil production ( see ' OPEC: High Benchmark Raises Expectations ' , February 14).

Higher Russian gas prices are expected from around May, though given the sideways trading in crude over the last three months, prices will likely remain stable over much of the year. However, LNG prices are due to drop around the same time as new capacity is brought on line ( see ' JKM: Short-Term Strength Masking Long-Term Weakness ' , December 8 2016). This will make liquefied gas deliveries into Europe more competitive versus Russian pipeline gas.

Russian Competitive Edge Eroding
Spot LNG, NBP Day Ahead & Russian Cross-Border Gas (USD/mnBTU)
Source: Bloomberg

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