Global LNG markets navigate the unknown ahead of winter

Western sanctions imposed on Russia over the invasion of Ukraine disrupted the supply of Russian gas to Europe, driving global gas prices to historic highs earlier this year and raising concerns about energy security. Moscow describes its action as a special military operation.

In addition to the unpredictable weather conditions, it is unclear if there will be further cuts in Russian supplies to Europe, the leaders said. Nor is it certain that Europe can build new LNG import infrastructure in time to replace the massive Russian volumes, they added.

Another question is when China will lift its COVID restrictions, which reduced imports in the first five months of this year.

“We have massive uncertainty about what’s going to happen next,” Steve Hill, executive vice president at Shell, told the World Gas Conference.

“If we convert the volume of Russian gas transported by pipeline to Europe in 2021 into LNG equivalent, and add the volumes of LNG delivered to Europe in 2021, this amounts to 200 million tonnes of LNG equivalent. the size of the current (global) LNG industry.”

Infrastructure constraints that have arisen as gas flows shift from west to east, rather than east to west, have made the situation “more complicated than we originally thought”, he said. addition.

Peder Bjorland, vice president of natural gas marketing and trading at Equinor, said the changing flows have created a “strange market” where some countries in Europe, such as Britain, have excess supply, but where there is no infrastructure to transport the gas to demand centers like Germany.

This has created a significant price gap between the UK national balancing point and Dutch wholesale gas prices, which could provide an incentive to invest in infrastructure to reduce bottlenecks, leaders said. But building this infrastructure would take time, they added.

Germany is building an LNG reception terminal and has contracts for floating storage and regasification units.

“It’s a race against time. We believe that the regasification facilities will probably be operational before the end of winter, but perhaps not at the beginning of winter. So it’s a very delicate balance”, said Michael Stoppard, head of global gas strategy at S&P Global Commodity Insights.

A severe winter in the northern hemisphere could also trigger competition between Europe and Asia for LNG and drive up prices, executives said.

“As we move into winter…markets like Asia are really starting to compete for these cargoes,” said Anatol Feygin, executive vice president of Cheniere Energy.

However, an executive at a Chinese gas importer said buyers were likely to enter this winter better prepared than last year as European countries such as Germany and Italy demanded stock levels minimum.

Buyers are increasing their inventories ahead of winter, which is supporting Asian spot LNG prices nearly three times their May 2021 levels, unusually high for a low demand season in the second quarter.

“It’s not as pessimistic this year because everyone is getting ready for winter,” said the executive, who declined to be named due to company policy.

Meg O’Neill, managing director of Woodside Energy Group, said she expects LNG prices to remain strong next year as the market adjusts to supply disruptions.

Market uncertainties and price volatility have already prompted buyers in Asia and Europe to seek long-term supplies.

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