China Merchants Securities released a research report stating that last night, the price of Dutch TTF natural gas (2604) surged to 54.29 EUR/MWh, nearly doubling over two days. This sharp increase in natural gas prices is primarily attributed to the US-Iran conflict leading to the closure of the Strait of Hormuz and an attack on QatarEnergy's LNG production capacity. The firm anticipates significant impacts on global energy supply, with Europe, which currently has low inventory levels, being the first affected. The duration of the impact may exceed expectations and is expected to drive a new wave of demand for residential energy storage systems. The main points from China Merchants Securities are as follows:
European Natural Gas Surge Last night, the price of Dutch TTF natural gas (2604) surged to 54.29 EUR/MWh, nearly doubling over two days. This rapid price increase is mainly due to the US-Iran conflict, with Iran currently prohibiting any vessels from passing through the Strait of Hormuz, effectively closing the strait. Additionally, QatarEnergy's LNG industrial park, Ras Laffan, was attacked. QatarEnergy has declared force majeure and halted LNG production.
Significant Impact on Global Energy Supply Expected Qatar is one of the world's top three LNG exporters, with all related transportation requiring passage through the Strait of Hormuz. Its supply accounts for approximately 20% of global LNG supply, primarily to Asian countries, with about 10% exported to Europe. By 2025, around 10% of Europe's LNG is expected to come from Qatar. While the direct dependency is not extremely high, Europe's current natural gas inventory levels are among the lowest in the past six years, only slightly higher than the same period in 2022. Furthermore, US LNG, which Europe heavily relies on, might be subject to competitive bidding from Asian nations. Overall, given the current tight balance in the global natural gas market, the closure of the Strait of Hormuz will severely impact global energy supply. Europe, with its low inventory levels, will bear the initial brunt, while other regions will also face supply challenges. Considering the attack on the Ras Laffan industrial park, repairs and restarts will take time, potentially leading to a longer-than-expected duration of impact.
Residential Storage Industry Enters a New Phase Starting from the second half of 2023, the European residential storage industry, which had boomed following the Russia-Ukraine conflict, entered a destocking cycle. After two and a half years of adjustment, inventory levels in the European residential storage market have now returned to healthy levels. Meanwhile, the Australian market introduced strong subsidy policies for residential storage in the second half of last year and has continued to enhance them, leading to a significant recovery in the industry. Countries like the UK and Poland have recently announced major policies, expected to provide stimulus to the industry comparable to that in Australia. Demand for residential storage is also emerging in regions across Asia, Africa, and Latin America. Overall, residential storage has evolved from a niche sub-sector and begun to play an important role in the global energy system.
Conflict Expected to Drive a New Wave of Residential Storage Demand Under Europe's marginal cost-based electricity pricing mechanism, LNG natural gas serves as the anchor for power market pricing. The rise in gas prices resulting from this conflict will effectively transmit to electricity prices, and demand for residential storage is anticipated to experience a new wave of growth. Moreover, the impact of a 20% shortfall in LNG supply is not limited to Europe; emerging markets for residential storage, such as those in Southeast Asia, are also expected to see significant growth.
Stocks to watch include: Alpha ESS, GoodWe, Dyness, Ginlong Technologies, Sungrow Power Supply, Sineng Electric, Chint Power Systems, KSTAR, Pylontech, and Hiconics.
Risk warnings include: rapid subsequent changes in the conflict, fluctuations in industry policies, downstream demand falling short of expectations, and intensifying industry competition.
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