Page 7 - EurOil Week 40 2021

EurOil COMMENTARY EurOil

in the Northern Hemisphere. Citigroup has as the market continues to tighten.
suggested that cold winter weather could cause
Asian LNG prices to rise threefold compared What next?
with today. A new wave of liquefaction capacity is under
“At the extreme, it would not be a surprise construction, but not enough is due to come
if some gas or LNG cargoes could even change online in the short term to provide immediate
hands in the $100 per mmBtu [$2,766 per 1,000 relief. According to the International Gas Union
cubic metres] range, or ~$580/bbl in oil-equiva- (IGU), only 8.9mn tonnes per year out of a total
lent terms, based on observing how prices have 139.1mn tpy of planned new liquefaction capac-
spiked in the US gas market, for example, over ity is set to come online in this year.
the past ten years,” Citigroup said in a note last And there may be longer-term challenges to
week. contend with, according to Tellurian’s executive
Current increases show that countries such chairman, Charif Souki. The global shift away
as China are trying to plan ahead for potential from fossil fuels towards greener energy supplies
demand spikes over the winter, but if supply had slowed investment in LNG infrastructure,
constraints cannot be resolved quickly, it will he warned recently.
become increasingly harder to meet additional “The world was kind of lulled to compla-
demand. cency because prices were low for five years, so
The situation is increasingly putting Asia no one felt an urge to plan and everyone got very
into competition with Europe for LNG supplies. religious on environmental protection and it is
Indeed, European gas prices are also climbing as wonderful – we should be – but we should look
gas companies on the continent try to restock at what things actually work rather than simply
depleted inventories. JKM’s premium over the what we hope for,” Souki was quoted by Reuters
Title Transfer Facility (TTF) benchmark price as saying.
in Europe has narrowed, also pointing to inten- Potential consequences of the LNG price
sifying competition. spike – especially on top of last winter – include
“Competition with Europe will persist,” BCA buyers rethinking their reliance on the spot
Research’s chief commodity and energy strate- market. Interest in new long-term contracts has
gist, Robert Ryan, was quoted by Bloomberg as already risen in recent months and could grow
saying. “Asia successfully pulled cargoes over last further still. Last year, the spot market accounted
winter by hiking prices to $32 [per mmBtu] lev- for around 35% of global LNG imports, accord-
els and may well have to do that now to attract ing to the International Group of Liquefied Nat-
supply. There’s also the possibility that this still ural Gas Importers (GIIGNL).
isn’t enough and governments in China and The price increases could also serve as a set-
elsewhere could start ordering factories to shut back to the uptake of LNG as a marine fuel. This
down to conserve power.” week, OPEC warned in its World Oil Outlook
Traders already expect China to continue 2021-2045 that the shipping industry was at
spot LNG purchases over the next few weeks, a “technology crossroads” and that rising gas
according to Bloomberg, which is anticipated to prices had resulted in the cancellation of some
push prices even higher than they are currently LNG-fuelled vessel orders. ™

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