LNG

An US-Iran peace deal resolution is expected “very soon,” Pakistan’s foreign ministry says – which would hit future prices immediately – but physical LNG and oil flows, deliveries, and broader supply normalization would lag by weeks, Rystad Energy cautions.

China is preparing to list Yuan-denominated LNG futures on the Shanghai Futures Exchange as early as February in a bid to bolster pricing power of its state-owned LNG importers CNOOC, CNPC, Sinopec and PetroChina.

Shortfalls in Australia’s East Coast gas markets force regulators to make tough choices. Price caps, while offering short-term consumer relief, risk to undermine project economics and deter investment in future supply.

“Recent exemptions have effectively set a floor price as market participants anchor prices to the cap, making the market less responsive to supply-demand signals,” said Daniel Toleman, Wood Mackenzie’s research director of global LNG.

Export diversion is another option to help boost domestic supply but risks damaging Australia’s reputation as a reliable LNG supplier. “Queensland LNG projects were approved without domestic obligations and rely on long-term contracts,” Toleman said, explaining: “Diverting exports would require major infrastructure upgrades, as southern markets face the brunt of the shortfall.”

Imports 'commercially challenging'

Importing LNG through floating storage and regasification units (FSRUs) is “technically feasible but commercially challenging,” analysts warn. Global demand for FSRUs has surged since the Russia-Ukraine conflict, making units scarce and costly. The government may need to underwrite the commercial risk of such infrastructure.

Moreover, importing LNG would expose Australia to volatile global prices. Domestic gas prices would align with international LNG costs plus regasification and transport charges — potentially far exceeding current netback pricing.

Analysts pledge investors to come forward. Unlocking new domestic gas supply is the most effective way to reduce emissions and lower energy prices in Australia, Wood Mackenzie argues. But this would require a shift in government policy and a willingness to make politically difficult decisions.

Though Germany must phase out fossil gas by 2045 to become climate neutral, there is no clear roadmap for exiting natural gas in the power sector and the future role of LNG, the International Energy Agency (IEA) criticises. The German ‘LNG Acceleration Act,’ for once, stipulates an end of LNG imports by 2043 when terminals should be converted to hydrogen.

To meet that timeline, substantial investment in Germany’s traditional gas infrastructure would be required, analysts pointed out.

For repurposing LNG regas terminals to accommodate hydrogen, the key question is temperature. Methane liquefies at −160°C and hydrogen −253°C. The European Network of Transmission System Operators for Gas (ENTSOG) recommends terminal operators to carry out a risk assessment of LNG in order to analyse the impact on the process conditions, properties of mixtures and consequences.

As for storage, Germany has the largest gas storage capacity in the EU with around 40 gas storage facilities holding more than 24 bcm. Up to 1% hydrogen per volume can be blended into an average gas storage facility – while a pipeline that currently carries mainly natural gas can transport about three times as many cubic meters of hydrogen, an ENTSOG-G study finds.

Key gas pipelines in Germany include Nord Stream 1, which used to transport Russian gas through the Baltic Sea; the Yamal-Europe Pipeline, now primarily used to transport natural gas from Germany to Poland; the Trans Europa Naturgas Pipeline, connecting the German and Dutch gas grids; and the Europipe I and II pipelines, which import natural gas from Norway’s North Sea fields into Germany.

Clear timeframe needed for gas-to-H2 conversions

Looking at the power sector, there is currently no roadmap for exiting natural gas in the power sector. Unlike coal, no timeframe has been set out, though the target of 100% fossil-free generation by 2035 indicated the need for speedy gas-to-hydrogen conversions – or utilities face the risk of plant closures.

Uncertainty about tenders for hydrogen-ready power stations or a future capacity market is has made Germany’s largest utilities to withhold investment in new power stations, which, in turn, risks to push up wholesale power prices.

The IEA hence urges the incoming coalition government to clarify the timing of a future gas exit. Timeframes for mandated hydrogen conversions would provide industry with the certainty needed to invest in the required import infrastructure (for both natural gas and hydrogen) and industrial clusters.

Electrification in focus first, hydrogen and CCUS second

The industry in Germany is struggling to stay competitive in the face of rising fuel costs and high electricity prices. To mitigate the risk of deindustrialisation, IEA analysts recommend policymakers in Berlin should concentrate efforts on promoting energy efficiency and electrification” in the short run. The rising adoption of hydrogen and post-combustion carbon capture utilisation and storage (CCUS) are seen as e viable pathways in the longer term.

For now, Germany’s dependency on natural gas continues “without a clear end in sight,” analysts criticise the government’s failure to set out clear policies on how to enact the clean energy transition. The outgoing government’s Power Plant Strategy attempted to tender 12.5 GW of new natural gas-fired power plant capacity that could later run on hydrogen.

“In this way, the construction of new hydrogen-ready gas-fired capacity could avoid a fossil fuel lock-in that is not at odds with the electricity generation target, as long as the fuel switch takes place on time,” analysts acknowledged but called for more clarity around the viability of hydrogen-ready gas plants.

Gas peaking plants are believed to keep playing a vital role in grid balancing beyond 2035. But other flexibility options, notably industrial demand response, storage and interconnections, should be encouraged as these “may displace the need for additional generation capacity,” analysts argue. The IEA hence urges the German government to “move ahead with the future electricity market design proposals, including a capacity mechanism.”

November gas future contract at Henry Hub soared to $2.932/MMBtu after hurricane Helene made landfall with a windspeed of 140mph in Florida’s Big Bend region. Though LNG infrastructure was not impacted, offshore gas production in the US Gulf of Mexico (GOM) fell by nearly 10 bcf as developers took precautions.