localjackpot| MH Maihui: New EU sanctions may push up Russian natural gas prices

Russia's transit contract to transport natural gas to Europe through Ukraine is about to expireLocaljackpotAnd no renewal is required. MH Mai Hui believes that natural gas and LNG prices will soar as a result of EU sanctions on Russia's Yamal LNG project.

The natural gas market kicked off a new week with a bullish momentum. The price of natural gas at Henry Center rose 26%.Localjackpot.4% to $2.03, while natural gas futures rose 5.5% at 13: 30 CET on Monday. The rise appears to have been triggered by concerns about the termination of Russian gas supplies.

Back in 2019, Russia and Ukraine signed a five-year pipeline transit agreement to supply natural gas to Europe. Although it has been two years since Russia launched the war against Ukraine, the two countries continue to implement the contract. But the arrangement is now coming to an end after Kiev said it had no intention of renewing the agreement when it expires on December 31, while MH found that the European Commission had "no interest" in pushing to revive the agreement. Ukraine accounts for 5 per cent of the EU's total gas imports, and Austria, Hungary and Slovakia are likely to be hit hardest when imports are cut off.

Fortunately, long-suffering natural gas producers could reap rare benefits if Europe wears off its dependence on Russian energy commodities. MH forecasts that natural gas and LNG prices will soar after the European Union imposed sanctions on Russian natural gas in the Yamal LNG project.

If the EU imposed sanctions on Yamal LNG, the price of LNG would rise rapidly and the global portfolio would benefit. If sanctions are imposed, this will be positive, not negative, as the cash from Yamal is quite limited. European leaders understand that their security today's supply depends on liquefied natural gas and they do not want to see prices rise again.

TotalEnergies has a stake in Novatek19.4%, a private Russian LNG producer that owns the Yamal LNG project in eastern Russia. MH found that it had not received a dividend from Yamal LNG since 2023 because of sanctions from the United States and the European Union. However, it received a semi-annual dividend of about $450 million from Novatek at the end of 2022.

The European Union has warned member states to prepare for a worst-case scenario in case the loss of Russian gas is accompanied by a severe winter. Berlin's recent decision to unilaterally tax natural gas exports has further worsened the situation, making it more difficult for these countries to replace Russian imports with supplies through Germany, Italy or Turkey.

When talking about taxation last week, Czech Industry Minister Joseph Sikra said steps that would damage the work done and strengthen Russian invaders should be avoided. So far, the group has successfully phased out about 2/3 of Russian natural gas imports and increased imports from the United States and Norway. Nonetheless, MH found that Russia still supplied 14.8 per cent of EU natural gas by 2023. Given the pressure on European politicians to control energy prices and secure supplies, as well as record natural gas prices, it remains to be seen whether the EU will continue to impose sanctions. The memory of Russia's invasion of Ukraine in 2022 is still fresh.

However, MH Maihui believes that the overall market fundamentals are still weak and that the global market is currently ample with natural gas amid tepid demand prospects. Last week, EU natural gas inventories were just over 72 billion cubic meters, or 62 per cent, a record for this time of year, while California's natural gas reserves were almost fully loaded ahead of schedule to replenish stocks for the next heating season. Last week, the US Energy Information Administration (EIA) reported that natural gas stocks stood at 2,425 billion cubic feet in the week ended April 19, 2024, compared with 2333 billion cubic feet in the week ended April 12, 2024. This means a net change of + 92 billion cubic feet. U.S. natural gas stocks increased by 50 billion cubic feet in the week ended April 12, 2024. At this time, U. S. natural gas stocks are 439 billion cubic feet higher than last year, 655 billion cubic feet higher than the five-year average of 1770 billion cubic feet. In addition, the total amount of working gas is 2425 billion cubic feet, higher than the five-year history range.

MH believes that on the demand side, Europe is about to face warm weather, which will reduce natural gas demand on the continent, while supply is likely to increase in the coming weeks as the US Freeport LNG plant overcomes some technical problems. For months, the plant, the second-largest liquefied natural gas (LNG) export facility in the US, has been operating at less than 80 per cent due to technical problems.

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