Gas prices will stay HIGH for a long time, all to get gas NOW
Ever since the Russian invasion of Ukraine disrupted global energy markets, the LNG industry has been grappling with many uncertainties. Indeed, the only real certainty is that spot prices for LNG will remain high for years to come, even if they won't hit the most recent record levels again. Major demand centers in Europe and Asia are facing a series of uncertainties at the end of the heating season and ahead of next winter, the peak demand period in the Northern Hemisphere.
The questions that move the market are.
- will Europe be able to fill its stocks for November?
- will Asia be able to buy the amount of LNG it needs to face the winter?
The demand and supply of LNG will also depend on whether Russia will cut off supplies to other EU customers after the cut in supplies to Poland, Bulgaria and Finland, and how cold it will be next winter in Europe. and in Asia. In short, the demand will depend on a very wide and hardly predictable series of variables.
Shell Vice President Steve Hill said : “If we convert the volume of gas from Russian pipelines in Europe in 2021 to a liquefied gas equivalent and add the volumes of LNG delivered to Europe in 2021, that's 200 million tonnes. of equivalent LNG. It is half the size of the current (global) LNG industry "
These dimensions show that it is clear that Europe will not be able to replace all gas from Russian pipelines with LNG anytime soon. Anyone who says otherwise is deluded. The world does not have all this supply capacity and it will not until the middle of this decade. Larger volumes of LNG are expected to arrive on the market in 2026 and thereafter, when US projects under development and Qatar's expanded capacity come into operation.
Since the energy crisis last autumn, Europe has supplanted Asia as an engine of growth in LNG demand and is no longer a marginal market. The Russian invasion of Ukraine has further spurred Europe to reduce its heavy dependence on Russian gas, without which the continent currently risks a severe industrial slowdown and a rush to secure warming for the coming winter.
LNG demand in Europe is now expected to remain high until the start of the next winter season. In addition, EU Member States are now required to reach a minimum gas storage level of 80% by 1 November to protect themselves from potential supply disruptions . Starting in 2023, the target will be raised to 90% full gas storage by 1 November.
“Filling up the EU's gas storage before next winter is crucial to guaranteeing our security of supply,” European Energy Commissioner Kadri Simson said last week.
Asia has less clear prospects. The high cost of liquefied gas has led to a 10% drop in consumption in the continent, with -11% for China, -14% for Japan and -25% for India. According to WoodMac , Asia's overall LNG demand this year is expected to be flat compared to 2021, not least as India and China will replace expensive gas with affordable Russian coal and gas.
High spot LNG prices have sidelined Asian buyers, while market volatility and uncertainties and energy security concerns have prompted an increasing number of buyers to seek long-term contracts .
The rush to supply LNG could give rise to the second wave of LNG projects in the United States, but the new offering will take time to develop, said Kateryna Filippenko, Principal Analyst, Global Gas Supply, at Wood Mackenzie last week.
Meanwhile, apparently, Europe seems to have beaten Asia by paying higher prices. however, it is doing so by signing long-term contracts, as we said earlier. These agreements are being signed now, at high prices, but which will have a considerable duration, complete with the obligation to purchase certain quantities. So both Europe and the remaining Asian buyers are pledging to pay high prices over the long term. Even if prices plummet tomorrow, don't expect discounts.
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The article Gas prices will stay HIGH for a long time, all to have gas NOW comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/i-prezzi-del-gas-resteranno-alti-a-lungo-il-tutto-per-avere-il-gas-ora/ on Sun, 29 May 2022 18:44:27 +0000.