LNG

European and Asian liquefied natural gas prices declined this week in the absence of geopolitical dramas and as markets adapted to a mixed gas storage picture amid continued market management attempts by the European Union.

European and Asian liquefied natural gas prices and futures surged again as Israel targeted military assets in Iran overnight with a wider Middle East conflict threatening LNG cargo deliveries from Qatar as departures were lower this week because of shipping security as well as weather issues.

Asian liquefied natural gas prices and European cargo values increased for a third week as the Northern Hemisphere winter gas season is set to close with high storage yet to be tested for a second year by adverse weather while crude oil hit a four-month high on negative supply forecasts.

European natural gas entered backwardation as prices in Europe and Asia dropped to three-year lows even as demand increased as temperatures fell and gas storage levels registered large draws, while US and UK air raids on Yemen still failed to push oil over $80 a barrel.

Liquefied natural gas has been crucial in navigating through the gas market crisis, playing a key role in offsetting the shortages in Europe, with global LNG exports showing a first-half 2023 year-over-year increase of more than 4 percent despite volatilities due to facility maintenance and outages in the Northern Hemisphere summer months.

The market report and outlook comes from the 90-page Global Gas Report 2023 just issued by the International Gas Union, the global voice of the gas industry with more than 150 corporate members in over 80 countries, representing 90 percent of the global gas market and whose President is Li Yalan of China.

“In the context of the globally tight LNG supply, while it was instrumental in keeping the lights on in Europe, the unaffordable prices left some countries in Asia in the dark,” the IGU stated.

“Europe’s natural gas imports shifted from Russian pipelines towards LNG leading to a 69 percent increase in its LNG imports, reaching 124 million tonnes (169 billion cubic metres) and making Europe the biggest importing market, absorbing a significant share of the global LNG volume by outbidding other customers,” the IGU added.

The IGU noted that roughly two thirds of the additional volumes, or 30MT of LNG,came from the United States and in Asia, China reduced LNG imports from Australia and the US by a total of 21MT, while it increased imports from Qatar by around 7.4MT.

Supply shortage

The IGU also stated natural gas prices had cooled in 2023, largely due to demand-side adjustments in Europe and Asia, yet they remain above pre-Covid and pre-energy crisis levels. 

“The shortage of global supply, which was the key reason behind last year’s shocks, is still there: the market is in a state of a fragile and unstable equilibrium,” the IGU explained, citing marginal supply growth and the need for more infrastructure de-bottlenecking.

The report added that Europe's growing dependence on LNG has rendered global gas prices increasingly vulnerable to liquefaction and shipping supply risks.

Global natural gas production in 2022 stayed flat in comparison with the previous year with a marginal 8.3 Bcm uptick, which was less than a 0.5 percent increase year-on-year.

However, the IGU said that first half of 2023 saw a mild revival in global gas supply, yet the final annual result remains uncertain. 

“Looking back, the curtailment of Gazprom’s output in Russia was offset by supply growth in North America, which grew from 1,160 Bcm to 1,213 Bcm, and in the Middle East, which grew from 670 Bcm in 2021 to 687 Bcm in 2022,” the IGU said.

“In Europe, incremental production in 2022 largely came from Norway, which has been maximising output (7 percent growth year-on-year) to increase exports to the rest of the continent,” the report added.

“In Asia, gas production rose modestly from 696 Bcm in 2021 to 712 Bcm in 2022, driven mainly by higher production in China and Central Asia,” said the report.

“By contrast, Africa experienced falling gas production of 1 percent (2.9 Bcm) between 2021 and 2022,” the report stated.

European and Asian liquefied natural gas prices and wholesale values fell again as European Union gas storage continued its early build while Germany and China were receiving more cargoes.

Asian spot liquefied natural gas cargo values adjusted to the front-month futures moving to December as Chinese demand was seen returning and European wholesale prices continued to be quoted at higher levels to Asia in the supply windows through to March 2023.

Global natural gas and LNG markets have been given further considerations to add to the mix of North Asian spot cargo prices and European gas values as the NYMEX Henry Hub jumped to $8.80 per million British thermal units on perceived very high future LNG demand from Germany to Guangdong.

Liftings of liquefied natural gas cargoes increased while North Asian spot futures prices slumped by between 15 percent and 30 percent for March and April deliveries as major Chinese LNG importing hubs, Tianjin and Dalian, imposed strict Covid-19 curbs while European benchmarks also dropped.

The International Gas Union, the global promoter of the natural gas industry and whose membership covers 85 countries and 95 percent of the gas market, has published its latest Global Wholesale Gas price survey showing that gas-on-gas competition (GOG) in the markets continued on its upward path.