LNG’s position as a bridge fuel remains strong

When analysts sounded the alarm bells for Europe’s energy security earlier this month due to the looming shortage of liquefied natural gas, the culprit was identified as stronger demand for frozen fuel from Asia.

But demand is still only one side of the story.

The global supply of liquefied natural gas has tightened in recent months amid rising demand due to scheduled maintenance and outages, Reuters’ Clyde Russell noted in a recent column.

Russell cites Australia and the United States as examples of how regular maintenance can perhaps better explain the reduction in the volumes of LNG exported. But some gas producers grapple with pandemic-related maintenance issues, Bloomberg’s Anna Shiryaevskaya reported earlier this month, also highlighting supply outages at LNG terminals in other parts of the world.

The United States Energy Information Administration has also Noted supply blackouts at LNG plants in Australia, Malaysia, Nigeria, Algeria, Norway and Trinidad and Tobago are one of the reasons for the increase in US LNG exports. Yet even with this increase, US LNG has not been sufficient to meet fuel demand.

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Meanwhile, Asian demand continues to be stronger than usual for this time of year due to a warmer summer which has resulted in greater demand for electricity. Europe is desperately trying to fill its gas storage before winter, but there is great doubt as to its success as it competes directly with Asian importers for limited volumes of LNG. As for gas pipeline imports, Europe remains dependent on Russia, which recently reduced export volumes, albeit temporarily, due to a fire at a Gazprom facility.

Globally, LNG importers are likely to continue to depend primarily on Qatar. Indeed, Qatar was the only major LNG producer to increase production during the surge in demand. According to Kpler data cited by Russell of Reuters, global LNG imports totaled 30.96 million tonnes. This is an increase from 28.2 million tonnes in July last year.

However, this month’s imports are likely to be even higher, at around 31.88 million tonnes. Whether exporters will be able to meet this demand remains open, but in all likelihood we will see even higher LNG prices in the spot market.

The situation could persist: Bloomberg’s Shiryaevskaya quoted Russian Novatek deputy general manager Mark Gyetvay as saying earlier this month that LNG demand is expected to remain strong in Asia for the rest of the year. Indeed, after a short break in the fall, winter normally increases the demand for fuels because the demand for heating replaces the demand for air conditioning.

Likewise, demand for LNG and gas, in general, is also expected to remain strong in Europe, as the continent tries to prepare for winter. The situation is very welcome for LNG producers. It should also be gratifying for Gazprom as Europe is now eagerly awaiting the start of the Nord Stream gas pipeline – a controversial project hotly contested by the Baltic States and Poland – which would add 55 billion m3 in annual export volumes to the gas-hungry continent.

According to EIA, US LNG exports this year will exceed its pipeline exports for the first time since the country began exporting liquefied natural gas. Both will continue to grow this year and next, the agency said in its latest short-term energy outlook, suggesting that current LNG and gas fundamentals will hold for some time.

An interesting aspect of the current dynamics of the gas market is that Europe does not seem to be insisting on low carbon LNG. While at the start of the year the EU ruffled some feathers in the energy industry by insisting that the LNG it receives has a low carbon footprint, the priorities appear to have shifted significantly, the security of winter supply taking precedence over the emissions footprint.

LNG market dynamics also suggest that forecasters such as Shell and BP were right to expect continued strong demand for LNG that runs counter to EU officials such as the Green New Deal leader, Frans Timmermans, who said earlier this year that “fossil fuels have no viable future” in Europe as she strives to achieve net zero emissions.

German Chancellor Angela Merkel made an ambitious statement earlier this month when she said in a meeting with the Ukrainian president that Germany would wean itself off from Russian gas within 25 years. Judging by the current dependence of Europe’s largest economy on Russian gas and its plans to shut down its coal and nuclear power plants, it seems a lot easier said than done.

What is true for Germany is true for Europe and Asia in terms of dependence on imports, regardless of their origin. As the talk of natural gas and LNG has shifted from being a transitional fuel to being no better than coal and oil, the realities of energy security suggest that gas will likely continue to benefit. strong demand for years to come.

By Irina Slav for Oil Octobers

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