High natural gas prices are making it economical for European operators to switch from natural gas to distillate fuel oil in electricity generation, Trend reports with reference to the US Energy Information Administration.
EIA says in its latest report that from August 26 to September 1, ULSD prices declined by 45 cents/gal (11%) as natural gas prices declined and concerns around an economic slowdown that could reduce distillate demand regained the focus of the market.
“Europe finished the 2021–2022 winter heating season with natural gas inventories at 26 percent full compared with the five-year average of 34 percent, according to data from Gas Infrastructure Europe’s (GIE) Aggregated Gas Storage Inventory (AGSI+). Because of limitations in and uncertainty about natural gas pipeline imports from Russia, Europe has been importing record amounts of LNG in 2022 to refill inventory before the upcoming winter,” reads the report.
EIA notes that the recent supply constraints affecting the global LNG market and the reduced pipeline flows into Europe have contributed to the increase in the TTF futures price and the increase in the price premium for LNG cargoes delivered to Europe relative to LNG cargoes delivered to East Asia.
“Strong demand for LNG in Europe continues to drive high international natural gas prices. The percentage of U.S. LNG exports to Europe has increased in 2022, averaging 69 percent in the first half of 2022 compared with 32 percent in the first half of 2021. U.S. facilities exported LNG at close to their combined capacity in August (excluding the offline Freeport LNG facility), with capacity utilization averaging 93 percent across all operating facilities.”