An Unstoppable Natural Gas Rally

1. Oil Supply Disruptions Set To Ease

- With September seeing crude supply disruptions across continents, the upcoming months should bring most of that idled capacity back, also boosted by the end of field maintenance in Kazakhstan and Canada.

- Russia’s condensate supply was derailed by an August explosion at Gazprom’s condensate treatment plant, whilst Nigerian exports were hindered by oil spills and pipeline attacks.

- Shell, the main producer in the US Gulf of Mexico, indicated that repairing the West Delta-143 platform will take at least several months, shaving off some 250,000 b/d of production over Q4 2021.

- More than 16% of US Gulf of Mexico production is still shut-in, equivalent to almost 300,000 b/d as the pace of restoring output has weakened substantially this week.

2. Gas Prices Continue Their Insane Run

- Europe’s benchmark TTF pricing has netted another all-time high this week, with front-month ICE prices reaching €75 per MWh ($25 per mmBtu) this Monday, before dipping closer to the €70 per MWh threshold.

- In the meantime, spot LNG prices in Asia continued their upward movement, too, surging past $25 per mmBtu this week in unison with Europe.

- Russia’s pipeline gas monopoly Gazprom has still failed to book additional October capacity as it continues to replenish domestic inventories, while landed LNG prices in Europe are more than fourfold their seasonal average.

- Gas storage levels in the European Union and Great Britain combined are still only around 72%, more than 20% below last year levels.

3. Italy Tries to Shield National Utility Companies

- Italy’s government will spend more than 3 billion (equivalent to 3.5 billion) to offset the adverse consequences of the ongoing power price surge across Europe which could have hiked electricity bills by some 40% without government intervention.

- Rome has already used this year’s income coming in from ETS auctions to partially cover utility companies’ losses as heavily import-dependent Italy struggles to source its energy feedstocks.

- The legislative package, expected to be expedited across the Italian parliament, will involve cutting VAT on energy throughout Q4 2021.

- Elsewhere, UK business secretary Kwasi Kwarteng claimed the United Kingdom will not be bailing out failed companies as several smaller providers have already collapsed.

4. Lithium Carbonate Prices Skyrocket to Another All-Time High

- Chinese lithium carbonate prices have surged to yet another historical high this week, hitting 182,000 yuan per metric ton (equivalent to $28,000 per mt) as market liquidity shriveled up.

- Nevertheless, demand for lithium carbonate remains very strong ahead of peak lithium-iron-phosphate (LFP) battery production period in October.

- The surge in lithium raw materials also pushed up spodumene prices, with spodumene concentrate adding over 1,000 per metric ton in the past decade, trading around 2,500 per mt.

- Buyers have increasingly tried to avoid buying spot lithium for LFP batteries, the most frequently used type in Chinese EVs, as prices for the alkali metal have shot through the roof, seeking out marginally cheaper term supply deals.

5. China Halts Financing of Coal Projects Abroad

- China vowed to stop financing coal-powered projects abroad as part of its national climate commitments ahead of the COP26 meeting in Glasgow, in a move that might slash some 50 billion of investment.

- Beijing has been the largest investor in coal projects globally, with 44 coal plants across the globe earmarked for Chinese state financing, Reuters reports.

- At the same time China’s leadership will not change its stance on the domestic usage of coal and General Secretary Xi claimed the country will not begin to reduce coal consumption until 2026.

- Despite being a net importer of coal, China remains the world’s largest producer with production increasing for 4 straight years already, netting 3.9 billion tons in 2020.

6. High Energy Prices Squeeze Aluminium Profitability

- Aluminium prices have almost doubled over the past year on the back of ever-increasing demand from China and elsewhere and the ongoing surge in energy prices will push it even further.

- According to Citibank estimates, high-cost aluminum smelters in the Atlantic Basin are already running at production costs beyond $2,900 per metric ton, largely equivalent to market prices.

- Even in places with lower labor and energy costs, such as China, production has been meager as authorities continue curtailing power utilization, sending prices to a 13-year high.

- LME Aluminium cash prices traded around the $2,900 per metric ton mark this week, with the forwards curve heavily backwardated as it heads into 2022.

7. China Seeks More LNG as it Becomes World’s Largest Buyer

- Wary of LNG prices surging even farther above the $20 per mmBtu mark, Chinese buyers have been escalating their purchases of liquefied gas to prepare for peak winter demand.

- With China poised to become the world’s largest LNG importer this year overtaking Japan, the recent slurry of import tenders – the largest being Sinopec’s tender for 11 cargoes until March – will add to China’s already significant LNG imports.

- Japan’s LNG imports fell back following the Tokyo Olympics, with September arrivals declining to 5.5 million tons LNG (roughly half of it from Australia).

- Chinese LNG imports have been moving upwards throughout the summer season, despite the elevated prices this month will see a total of 6.8 million tons LNG arriving to Chinese buyers.