European natural gas: your top seven questions answered

In a recent webinar, analysts from our new short-term Euro S&D addressed key audience questions on the European natural gas market. Topics ranged from developments in Ukraine and Egypt to coal-to-gas switching, along with insights from Wood Mackenzie’s short-term liquefied natural gas (LNG) modelling. 

Read on for the first two questions, and fill in the form to access all seven. 

Q1. What is Wood Mackenzie’s current take on the situation in Ukraine following the recent attacks on gas infrastructure? 

There are some big numbers floating around on how much capacity has been taken offline, which should be treated with some caution. It is prudent from a Ukrainian geopolitical perspective to say that production has been damaged, regardless of whether that means production has been damaged and is now offline, or has been damaged but is still operational or operable. 

Some high-level numbers on the declines in the storage injection profile in Ukraine in early October  suggest that maybe something in the region of 15 million to 20 million cubic meters per day may have been taken offline. How quickly that can be brought back online remains to be seen. 

The third Monday of the month is interesting as this is a front-month capacity auction day in Europe.  All of the capacity on the Hungarian border is already booked for November. Not so in Poland or Slovakia. It will be interesting to see much of that capacity goes, especially in Slovakia where utilisation has been low. This will give us an indication of whether we are likely to see a significant step-change in exports out of Central Europe into Ukraine. Since the attacks, there has actually been a very marginal volume change in what has been sent been sent eastwards, but we wouldn't be surprised to see a step up. 

We have also already upgraded our outlook for net exports from Germany to Austria. There is potential for this to increase too, but it is hard to say how much gas will go from Austria into Ukraine through this route and how much of that will come from the southern corridor. 

Q2. What kind of short-term LNG models does Wood Mackenzie use? 

First, we have a price-sensitive, short-term LNG model. We take price as an input and let the model determine how much gas is going to flow, how much LNG will be delivered, when you should look at netback arbitrage opportunities, and so on.  

Second, we have our supply numbers, which come from our short-term LNG team. Here, we drill down into the various markets, for which we also have a regasification model that takes into account netbacks, storage operations and transportation flows. Consequently, we also divide the model based on price into the different markets. It's a global supply-and-demand model, which balances the market and then forecasts price. 

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