LNG Short-Term Outlook - July 2021

Brazil is going through the biggest water crisis in the past 90 years. The country, which relies on hydro generation for two-thirds of their electricity requirement, will need domestic production, gas from Bolivia and Argentina, as well as record high LNG imports in order to bridge the gap. The next few months will be particularly difficult, as Brazil enters the dry season with reservoir levels below historical minima, forcing them to ramp up LNG imports in spite of LNG prices being at five-year highs. European storage remains at the bottom of the five-year range, due in equal part to a late winter cold snap delaying the start of injection season, and also due to strong summer prices creating a disincentive to inject beyond the mandated minimum. Climbing coal prices have continued to raise the coal-to-gas switching band, with the result that TTF has moved to parity against oil prices in $/mmbtu equivalent, drawing in a large number of Atlantic LNG cargoes into connected terminals.