The View from London: Natural Gas

[dan_s]

This morning natural gas prices in Europe at Dutch Title Transfer Facility (TTF) are $12.81/MMBtu

From Irina Slav "For Energy" on October 14th: < Irina is a very smart lady that writes articles for OilPrice.com

In the beginning, there was flatulence. There was flatulence of cosmic proportions because the explosion of a whole universe into existence must have involved inordinate amounts of gas, possibly gases. To date, the most abundant elements in the universe are gases. That’s good for us because we’ve put some of these most abundant gases to good use. But there’s one gas that makes headlines like no other — the one gas that invokes emotions like no other gas can. One gas to trump them all, as it were.

Methane is what natural gas is mostly composed of. Methane is what comes out of oceans, rivers, and possibly lakes, as well as out of wetlands and other ecosystems. Of course, methane also comes out of farm animals and fields. Landfills are another source of that fascinating substance as are, I imagine, your garbage bins and mine.

Methane has recently started to partially displace carbon dioxide as the ultimate villain in the global climate fairy tale because, let’s hear it, it has a much stronger greenhouse effect than CO2 (although this effect is also much more short-lived but that’s obviously beside the point).

Methane is now the target of new legislation out of the bureaucratic heaven of Brussels and it is also the target of increasingly aggressive attacks by people who just want to see all hydrocarbons gone from human civilisation and will stop at nothing short of a decline in their lifestyles to achieve that goal.

According to NASA, human activity, including oil and gas production, farming, and waste decomposition, accounts for 60% of global methane emissions. The rest comes from natural sources such as rivers and thawing permafrost. Human activity also uses a lot of methane to power turbines and produce electricity, to manufacture everyday products, and to heat stoves in five-star restaurants. But that’s beside the point, obviously.

We are being told by people demonstrating admirable persistence that soon we won’t need natural gas because we’d be powering everything with electricity derived from the sun and the wind, and life will be wonderful and clean. And then comes the IEA, everyone’s go-to source of factual and unbiased information, and ruins everything by telling us we’re using more natural gas than we’re producing. And it’s not even omitting the natural part that tends to make certain people with sensitive ears gassy.

The world is heading for a natural gas shortage because supply is growing more slowly than demand all while tireless climate warriors warn us that we must give up natural gas in favour of anything else because natural gas is bad, nay, worse than coal when it’s produced in the U.S. shale patch and exported to Europe. Guess what savvy traders are doing.

Last month, WisdomTree launched a new exchange-traded commodity contract. It is called the WisdomTree European Natural Gas ETC, its ticker is TTFW and it tracks an index created by French BNP Paribas “to provide investors with exposure to gas traded on the Dutch Title Transfer Facility (TTF), which is the most liquid European gas trading hub and the benchmark for European gas prices.”

That’s a lot of boring financial words but the important word in the story is first. TTFW is the first exchange-traded commodity to be offered to investors in Europe. And the commodity is natural gas, which Europe is expected to be giving up any moment now or in a few years at the latest because wind and solar are doing so well, we’re about to see billions worth in stranded assets in LNG import terminals and pipelines. Or something.

“As the European Union navigates an energy transition, it will still be reliant on natural gas. With that in mind, there will be periodic sharp increases in European natural gas prices as the fuel is used to make up shortfalls in renewables.”

The insolent statement comes from WisdomTree’s head of Europe commodities and macroeconomic research, Nitesh Shah, who no doubt deserves to be flogged in public for daring to suggest Europe would have to rely on natural gas. And it gets even worse. Because Europe will have to rely on increasingly expensive natural gas. As if that’s not enough, part of that gas that Europe will have to rely on will be Russian. It’s a tragedy in three acts and there is no happy ending because tragedies don’t have happy endings.

“Global demand for natural gas is increasing at a stronger rate in 2024 than in the previous two years, which were heavily affected by the turmoil of the global energy crisis,” the International Energy Agency intoned in its latest report on natural gas. “At the same time, new gas supplies coming to market in 2024 remain limited due to the relatively slow growth of LNG production while geopolitical tensions continue to fuel price volatility.”

That would be the same International Energy Agency that rather recently said that both oil and natural gas would peak before 2030 arrives, but that’s just business as usual for the IEA. A self-contradiction a day keeps the activists at bay. Anyway, in its latest report, the IEA said natural gas demand this year would rise by 2.5% driven by Asia and, marvel of marvels, some rebound in industrial energy demand in Europe, “even though it remains well below its pre-crisis levels.”

Alas, that industrial demand in Europe is unlikely to ever return to pre-crisis levels because of the three-act tragedy I mentioned earlier. Act 1 of that tragedy we saw in 2022, when Europe said “Nein” to Russian gas and “Here, have a thousand sanctions”, and the Russians said “Ну ладно, как хотите,” which translates into “Fine, do what you want.”

What Europe appeared to want was to suffer more rather than less so it was time for Act 2 and the Methane Regulation, when the main characters decide to hate on methane for a change and introduce an obligation for their natural gas suppliers to make sure not a single molecule of methane escapes along the way from bringing the raw gas from the ground to loading it on the LNG tanker to be delivered to one of the increasingly numerous import terminals along Europe’s coasts. Future stranded assets to the last one, of course.

The Methane Regulation will make LNG exported to Europe more expensive and it will also reduce availability because not all natural gas producers would happily spend the money needed for installing methane leak monitoring and reduction equipment. In fact, none of them would be happy about it although the EU has graciously granted them a grace period before the regulation kicks in. Until then, producers just need to report their methane leakage status. Okay, that just was not a very appropriate word and I apologise for using it.

As Carbon Credits tells us, “there are still uncertainties about its exact implementation, especially concerning how it applies to LNG importers. This has created a degree of uncertainty in supply contract negotiations.” Uncertainty is the new euphemism for total chaos.

“The most significant challenge for U.S. exporters,” CC continues, “is the requirement to collect methane emissions data “at the level of the producer.” This poses a hurdle, as many companies in the U.S. gas supply chain lack direct access to emissions information from wellheads.”

Now, why does this, yet again, sound familiar? Maybe because it smacks of the EU’s deforestation law, which was supposed to reduce deforestation by obliging suppliers of various agricultural commodities to the EU to provide tonnes of documentation verifying that no trees were harmed in the making of coffee, cocoa, rubber, and palm oil. Guess what happened to that law? It got delayed, that’s what happened, as soon as its fans realised what havoc it would inflict on the European market.

Meanwhile, in the US of A, “electricity generators binge on ultra-cheap gas”, as John Kemp would have us know, with gas-fired generation hitting all-time highs both in terms of absolute output and as percentage of all electricity, at 41% over the first half of the year. This may be about to change as gas drillers curb production and exports rise ahead of seasonal demand pick-up in the Northern hemisphere. Also, there are all those data centre operators waiting in line for electricity, literally.

This brings us to Act 3 of Europe’s Great Gas Calamity or the transformation of natural gas into a luxury few can afford — if, of course, our ruling anti-elites remain on their current political path, that is. There are the higher costs of imports already straining businesses and households after the loss of cheap gas from the Great Adversary, there are the looming higher costs of the Methane Regulation, and there will be the even higher costs of Tighter Supply because demand is growing faster than production. And the Brussels brain trust wants to build a supply chain for wind and solar at home to rival the Chinese because that makes perfect sense.

Meanwhile and on a totally unrelated note, “The European Union’s joint natural gas purchase mechanism, AggregateEU, has not turned into a game-changer for Europe’s gas market or supply of the fuel, according to sources familiar with the confidential data quoted by the Financial Times.”

If I were an adviser to the brain trust, I’d tell them to start commissioning alarmist reports about the sleeping methane giant under the permafrost to divert attention from the real methane problems that Europe is having and working hard to make even graver.

[mrbill]

Where can we buy TTFW? Could not find anything other than London.

[dan_s]

The WisdomTree European Natural Gas ETC has been listed on the London Stock Exchange where it trades in euros (Ticker: TTFW LN) and pound sterling (EGAS LN) as well as on Borsa Italiana (TTFW IM) and Xetra (EGAS GY), both in euros.

Read: https://www.etfstrategy.com/wisdomtree-unveils-worlds-first-european-natural-gas-etc-10339/