Liquid gas will be divided with a firm hand – Newspaper Kommersant No. 30 (7475) of 02/17/2023

Europe could take Asia’s role as the largest buyer of LNG and be forced to become a premium market for LNG due to a large supply shortage in the next two years, Shell said. European countries, including the UK, imported 121 million tonnes of LNG last year, up 60% from 2021, to cope with reduced supplies from Russia. This trend will continue in the coming years, making LNG, mainly from the US, a key fuel source for the EU and structurally changing the global gas market, Shell predicts. Pipeline deliveries from Russia to Europe, according to the company, will be reduced to only 20 billion cubic meters per year by 2030.

Europe’s increased demand for LNG will intensify competition with Asia for limited new LNG in the next two years, Shell said in its LNG market outlookpublished February 16th. The military actions in Ukraine “caused structural shifts in the market that are likely to affect the global LNG industry in the long term,” Shell said.

Before the outbreak of hostilities in Ukraine, Asia was the largest center of demand for LNG: the countries of North Asia (China, Japan, South Korea) represented the so-called premium market, where LNG prices are usually higher than in other regions. Europe, whose largest consumers were supplied with pipeline gas from the Russian Federation, was assigned a balancing role, as local companies were ready to buy LNG only during periods of increased demand or if its price became relatively lower. As Asian demand for LNG picked up in 2021, Europe cut back on its LNG purchases, opting to withdraw gas from UGSFs during the winter, entering 2022 with record low inventories.

In 2022, the situation was reversed: to replace the declining Russian gas flows, Europe bought up all available LNG cargoes at high prices, while in Asia demand decreased due to quarantine in China.

As a result, China, according to Shell, “has moved from a rapidly growing import market to a more flexible role with an increased ability to balance the global LNG market.” The global market is closely watching how demand for gas in Asia changes in 2023, as prices will depend on it.

Shell estimates that European countries, including the UK, will import 121 million tonnes of LNG in 2022, up 60% from 2021. A fall in Chinese imports by 15m. tons to 63m., together with a reduction in imports by buyers from South Asia, helped European countries avoid shortages. Japan imported about 72 million tons of LNG, South Korea – about 45 million tons.

Loading of LNG terminals in northwest Europe increased from 48% to 80% in 2022. LNG receiving capacity on the continent has increased by about 5 million tons per year (now about 146 million tons), taking into account already confirmed and discussed projects, receiving capacities can increase by another 76 million tons.

Shell estimates that EU gas consumption will drop to 400 bcm by 2030 from 480 bcm in 2022 (535 bcm in 2021). Domestic production will remain at 80 billion cubic meters per year. In the long term, according to Shell’s forecast, the EU’s demand will be met mainly by LNG from the United States, pipeline supplies from the Russian Federation will account for only about 40 billion cubic meters of gas in 2023, and in the future until 2030 they will drop to 20 billion cubic meters. At the same time, pipeline gas supplies from other countries will also decrease from 180 billion to 120 billion cubic meters annually. According to forecasts, by 2028 the United States will increase LNG exports from 80 million to about 160 million tons, and in general, the United States and Qatar will account for 80% of the increase in LNG production in the world until 2030.

“Additional investment in liquefaction projects is needed to avoid the gap between supply and demand that is expected to occur by the end of the 2020s,” Shell said.

To avoid price spikes, the company is calling for more importance to be given to long-term contracts, which Europe, on the contrary, has been willing to abandon in favor of the spot market over the past years. In 2022, LNG imports to China and Japan were 100% covered by long-term contracts, while in Europe this share was only 30% and will decrease to 18% by 2030, Shell calculated.

Ivan Timonin from Vygon Consulting considers the conclusion about the transition of the role of the balancing market to Asia and, in particular, to China, premature. According to his estimates, by 2030 the demand for LNG in China will grow to about 120 million tons, which is almost double the level of 2022. India has also set ambitious targets to increase the share of natural gas in the energy mix from 6% to 15% by 2030, most of the demand will be covered by LNG imports. Similar processes are taking place in a number of countries in South and Southeast Asia, in particular in Pakistan and Thailand. As for pipeline exports from the Russian Federation, he estimates that by 2030 at least 40-45 billion cubic meters will be needed to meet demand in the European market.

Tatyana Dyatel