LNG

Pressure on European and global natural gas markets has eased since the beginning of 2023 due to favourable weather conditions and policy actions discouraging gas use, though several factors point to possible supply risks in the fourth quarter.

By the end of first quarter of 2023 European hub and Asian spot liquefied natural gas prices had fallen below their summer 2021 levels but they remained well above their historic averages, according to the May gas report from the International Energy Agency.

It noted that the steep decline in natural gas demand reduced the need for storage withdrawals in Europe and the United States over the 2022-2023 winter.

As a result, storage sites closed the heating season with inventory levels standing well above their five-year averages.

“This is expected to reduce injection demand during the summer of 2023, and potentially ease market fundamentals,” stated the Paris-based IEA.

“However, the improved outlook for gas markets in 2023 is no guarantee against future volatility and should not be a distraction from measures to mitigate potential risks,” added the report.

Tight supplies

“Global gas supply is set to remain tight in 2023 and the global balance is subject to an unusually wide range of uncertainties. These include adverse weather factors, such as a dry summer or a cold fourth quarter and lower availability of LNG,” added the report.

The IEA explained that while the share of OECD Europe’s gas demand met by Russian pipeline gas fell to well below 10 percent in the 2022-2023 heating season, LNG effectively became a baseload supply for Europe, meeting over one-third of the region’s gas demand over the winter.

Russian piped gas exports to OECD Europe fell by an estimated 70 percent (or 50 Bcm) year-on-year during the winter.

While deliveries to Turkey declined by close to 30 percent, gas flows to the European Union plummeted by over 80 percent, translating into a drop of 47 Bcm compared to the previous heating season.

In contrast, Russia’s LNG exports to the EU rose by 5 percent compared with the previous winter period.

LNG flows from the United States increased by 30 percent, or almost 10 Bcm year-on-year, to account for over 45 percent of incremental LNG supply into Europe.

“This further reinforced the position of the United States as Europe’s largest supplier, accounting for over 40 percent of the region’s total LNG imports and meeting almost 15 percent of its gas demand,” said the IEA.

“Qatar increased its gas deliveries by 15 percent (or 1.5 Bcm), primarily supported by higher supplies to Belgium, France, Italy and Poland,” added the report.