Page 7 - GLNG Week 49 2022

GLNG COMMENTARY GLNG

remain at current levels upto the end of 2023 (via of starting up operations at these FSRUs with a
Ukraine and TurkStream only), annual Russian combined capacity in the region of 23-27 bcm.
pipeline gas to the EU could fall by a further 60% Germany is expected to bring a further 15 bcm
y/y to around 23 bcm in 2023. And clearly, there of regas capacity online early next year. This will
is a very real risk that the remaining flows via help with some of the infrastructure constraints
Ukraine and TurkStream will be halted. Europe is facing, but the issue is also around
In the current environment it is difficult to see global LNG supply and the limited capacity,
a recovery in Russian pipeline flows to Europe. which is expected to start next year.
Even if there was the will of both Russia and Global LNG export capacity was set to grow
the EU to restore flows, operationally it would by around 19 bcm in 2023, driven by the US,
be difficult to see flows return to pre-war levels Russia and Mauritania. However, following Rus-
given the damage to Nord Stream 1. The only sia’s invasion of Ukraine and the sanctions which
route where we could see a return of flows is the have followed, it is likely that the start-up of
33 bcm Yamal-Europe pipeline and increased Russian capacity will be delayed. Russian capac-
flows through Ukraine. However, for now, we ity makes up for 46% of the total new capacity
are assuming no improvement in supply; if expected next year. Therefore, we could see just
anything risks are likely skewed to more supply 10.5 bcm of new supply capacity.
disruptions. The other issue for the EU is competition for
LNG. This year, weak Chinese LNG demand has
Limited LNG supply growth been a blessing for Europe. LNG imports from
The liquefied natural gas (LNG) market has the world’s largest buyer were down 22% y/y over
helped Europe significantly this year. LNG the first 10 months of the year. This would have
imports into the EU over October grew by been due to the higher price environment as
almost 70% y/y, with volumes exceeding 9 bcm. well as the demand impact from Covid-related
However, there are constraints to how much lockdowns throughout the year. However, if we
more LNG Europe can import. There are reports see a recovery in Chinese demand next year,
that LNG carriers are queuing for spots at regas- Europe will have to compete more aggressively
ification units. This highlights the lack of regas for supply.
capacity in Europe at the moment. This queue of
LNG carriers could also be partly due to market 2023 will be tight for Europe
players wanting to take advantage of the signifi- The pace of inventory builds during the 2023
cant contango in the front end of the TTF curve. injection season will be much more modest
The EU has seen the start-up of a fair amount compared to what we have seen this year, given
of regasification capacity in the form of floating the reductions in Russian supply. The ability of
storage regasification units (FSRUs) over the the EU to completely turn to other sources is just
second half of this year. The Netherlands, Ger- not possible. Therefore Europe is likely to go into
many, Finland/Estonia have or are in the process the 2023/24 winter with tight storage, which will

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