(Greg Molnar) Gas pipeline trade contracted by over 35 bcm in H1 2020, absorbing most of the demand shock resulting from the lockdowns, whilst LNG supply continued to grow through the first 5M of the year and started to react to the changing market conditions only in June.
This highlights the importance of the volumetric flexibility of piped gas and the crucial role it can play in balancing out both regional and the global gas market.
There are several reasons why pipeline gas supplies were more reactive:
(1) Nomination rights lies with the buyers and can be adjusted on a day-ahead basis (vs LNG delivery rescheduling requires at least one month notice period);
(2) Inter-annul flexibility mechanisms: take-or-pay levels hovering between 70-90% are usually complemented with make-up gas options and carry-forward credits which can provide further downward flexibility
(3) Pricing: spot LNG outcompeted piped gas supplies (both oil- and hub-indexed with a lag)
(4) Upstream flex: Troll, Zapolyarnaya and all the great swing fields played a crucial role in adjusting production levels and piped exports (an option not always available for LNG, especially those supplied from a small, shale wells);
What is your view? Will piped supplies recover any time soon?
Source: Greg Molnar
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