Page 6 - GLNG Week 02 2023

GLNG COMMENTARY GLNG

to only 50-60 bcm, almost entirely via Ukraine import in 2022, overtaking the previous leaders
and Turkey. of China, Japan and South Korea, according to
As it turned out, Europe has managed to cope data from Refinitiv. Imports were up by 58% to a
well. Anticipating a shortage, a raft of measures total of 137 bcm (101mn tonnes).
were rolled out, but the most important is that After supplies from Russia halved to 60 bcm,
Europe aggressively bid on the international the EU imported 24% of total global LNG deliv-
energy markets to secure huge volumes of LNG. eries, Japan 17%, China 15% and South Korea
A record 136 bcm of LNG arrived in Europe last 11%. The share of liquefied gas in Europe’s con-
year – almost as much as Russia used to send to sumption increased 1.75 times, from 20% to
Europe. This extra LNG has more than compen- 35%, while the share of Russian gas fell to a third
sated for the missing Russian gas and led to the of its previous level, from 40% to 15%.
highest level of gas in storage in January for at
least a decade. Can Europe repeat that trick in 2023?
But having full tanks is not enough to avoid Prices for gas peaked in the middle of last
another crisis this summer. There are still two August, hitting twenty times more than pre-war
challenges to overcome this year. prices. Europe was prepared to simply outbid
The first is to refill the tanks ahead of the next Asian buyers and pay any prices to prevent the
heating season. Europe’s tanks collectively hold a threatened blackouts.
total of 108 bcm of gas, or between a quarter and Brussels was helped in this effort by China’s
a fifth of Europe’s total gas needs. That seems like economic woes, which sharply depressed the
a lot, but actually it’s only just enough. demand for gas. Beijing was happy to resell Rus-
Because of the enormous cost of building sian LNG it had ordered back to Europe. At its
pipelines and USG facilities (and the cost of high point “Chinese” LNG was accounting for
holding gas unused for months at a time) the 7% of all Europe’s gas imports.
whole system has been constructed with very lit- This year China’s economy is anticipated to
tle redundancy, which is what makes the weather bounce back after Beijing began to wind down
such an important factor. The pipeline system its “no-COVID” restrictions. Demand for gas in
from Russia and elsewhere sends more gas than China will rise again, taking much of its LNG off
is needed during the summer, but not enough the market.
during the winter. The excess gas that arrives in The weather will also play a role, as there is no
the summer is stored for use during the shortfall guarantee of another mild winter at the end of
in the winter. this one. Even another hot summer like that of
2022 will cause problems, by driving up power
LNG to the rescue consumption and hence gas consumption for
In the old system LNG was also supposed to be a power generation.
swing provider; a very expensive extra source of Another risk is that after Russian deliveries
gas to cover shortfalls in very cold winters. What were halved twice in the last two years by Krem-
changed in 2022 is that it is now a major main- lin machinations, it is not impossible that Russia
stream source of energy for much of Europe. The will cut the transit of gas Ukraine completely,
top 40 energy corps of US, Canada & Europe taking another 20 bcm off the table.
earned more than $3.6 trillion in 2022, up 48% Gas prices were back to normal in January,
y/y from the $2.4 trillion spent the year before. but gas prices are an unusual commodity in so
Between January and October last year the US much as they are determined on the day by a
alone sold 48 bcm of LNG to the EU, which is combination of current demand and how much
expected to rise to 50 bcm this year. physical storage space is available, not a discount
The Russian-inspired energy crisis has been on expected future supplies. Warm weather
driving reluctant European energy companies to drives down the demand, but as tanks fill to 90%
sign more and more long-term LNG supply con- of capacity it starts to become physically difficult
tracts in 2022 that are undermining the Europe to store any more gas, so tank owners are forced
Green Deal that aims to reduce emissions to zero to stop buying it even if they want more, pushing
by 2050. A year before, Brussels was expecting prices down.
to phase gas use out completely in the coming Gas prices will come under natural pressure
decade as part of its plans to transition to car- to rise as the summer wears on and uncertainty
bon-zero by 2050. over how cold the next winter will be returns;
The EU became the world leader in LNG there will be plenty of spare capacity this year but

P6 www. NEWSBASE .com Week 02 12•January•2023