Page 5 - GLNG Annual Review 2021

GLNG JANUARY GLNG

we didn’t get any response from suppliers. We governments to resume the pace of coal-to-gas
are continuing our efforts to buy from the spot conversions.
market ... But it is very unlikely to get competi- The problem has been that while the country
tive prices in this highly volatile market.” has prepared for harsh winters, temperatures
An Australian LNG developer highlighted the this year fell to their lowest level in decades.
extent of the price gains during its fourth-quar- Gloystein said: “[I]t did get really cold, and sud-
ter results statement, with Woodside CEO Peter denly they had to serve all this new demand.”
Coleman saying on January 21: “We agreed to Chinese buyers then re-entered the market
our highest ever spot LNG price for delivery in in pursuit of additional LNG cargoes to shore
the coming quarter, surpassing our previous up existing supplies that were put under intense
record set in 2012.” strain. While the surge in demand has been
Reports have begun to emerge, however, welcomed by developers with LNG projects on
that question the long-term viability of such the backburner, backing future prices based on
price volatility, noting that as winter gives way a volatile set of supply and demand factors may
to spring heating demands will ease, and so too be unwise.
will prices. Gloystein argued that the price spike would
not last much longer, as the cold season was Asian buyers
Buyer frenzy nearing its end, and with it demand would
The director of energy, climate and resources recede. He said: “This is probably the peak of would be well
at political risk consultancy Eurasia, Henning the spike.” advised to treat
Gloystein, has argued that the driving factor Regardless, Asian buyers would be well
behind record gas prices is China’s shift from advised to treat the current price high as an early the current price
coal to gas. warning of a bigger problem that is on the hori-
Gloystein, in an interview with CNBC in zon. Prior to the pandemic, global LNG supply high as an early
January, pointed to estimates that China had was widely projected to fall short of demand by
converted more than 10mn households from the middle of decade, owing to a growing polit- warning of a
coal-generated heat to gas in 2020. ical focus on carbon emissions, general rates of bigger problem.
China has been converting coal-fired heat- economic development and a slowdown in FIDs
ing systems to cleaner burning gas for years as for additional liquefaction capacity.
it seeks to reduce air pollution in the country’s Coronavirus (COVID-19) compressed devel-
cities. Its efforts led to severe supply shortages in oper budgets around the world in 2020, making
2017, which prompted a rethink of the govern- it harder than ever before to finance gas export
ment’s conversion strategy of adopting a slower, projects that cannot secure foundational offtake
steadier approach to the process. agreements. With Asia’s demand for gas only
In the years since, however, the country has anticipated to grow in the coming decades, buy-
built additional gas storage facilities as well as ers need to prepare now in order to avoid being
new piped gas and LNG import capacity. This caught out by future supply shortfalls created by
has paved the way for both the central and local spot market short-sightedness.™

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