But if the EU manages to “significantly reduce” its reliance on Russian gas – which it plans to cut consumption by two-thirds by the end of this year – global demand for LNG will exceed supply by 26 million tonnes by the end of 2022, according to Reuters. A recent analysis by consultancy Rystad Energy.
That equates to nearly 7 percent of global LNG demand last year, or about 25 days’ supply.
“By eschewing Russian gas, Europe destabilized the entire global LNG market, which started the year in a precarious equilibrium after a turbulent 2021,” the report said.
Europe snaps up LNG
Europe has snapped up LNG supplies at an alarming rate in recent months.
The region, which includes the UK, imported 28.2 million tonnes in the February-April period, up 29% from a year earlier, according to the independent Commodity Intelligence Service. France and Spain were the biggest buyers.
Kaushal Ramesh, senior gas and LNG analyst at Rystad Energy, told CNN Business the impending shortage became apparent in March, when “the EU announced that they would increase LNG imports by 50 bcm [billion cubic meters] compared to 2021. ”
“This phase will face persistent supply shortages, high prices, extreme volatility, a bullish market and intensified LNG geopolitics,” Ramesh said in the report.
Spot LNG prices in East Asia rose 114% on Thursday from a year earlier. That’s $22 per million British thermal units (mmbtu), according to ICIS. Global LNG trade rose 6% in 2021, driven by a strong rebound in Asian demand after the pandemic, according to the International Energy Agency.
Buyers are likely to be hit by further price increases as European demand soars.
Asia has been the largest importer of LNG since at least 2010, LNG Americas editor Ruth Liao told CNN Business. But some buyers in the region will find it difficult to compete with Europe’s wealthier economies, and they could be squeezed out of the market whether or not Russia suddenly shuts the taps.
“Next winter remains a major risk in terms of how LNG supplies balance competing demand between Europe and Asia,” she said. Say.
Rystad’s Ramesh said countries such as India, Pakistan and Bangladesh were most likely to be hit as LNG was diverted to Europe. Buyers should start signing long-term supply agreements, Eric Heymann, senior economist at Deutsche Bank, told CNN Business.
“A larger share of LNG demand and supply … is based on short-term or flexible contracts or spot markets,” he said. “Prices will determine where LNG goes,” he said.
India and Pakistan have cut LNG imports by 15% since November, a trend driven largely by higher prices, according to analytics firm Vortexa. As a result, demand in Asia could be “permanently reduced”, with some countries having to increase their use of coal and oil, Rystad Energy forecasts.
Others can speed up the transition to renewable energy. LNG is widely seen as one of the cleanest fossil fuels and a key component of the energy transition. But the evidence is mixed. Some studies have found that LNG produces significant reductions in greenhouse gas emissions over its life cycle, while others have found high leakage rates of methane—the main component of LNG—at various stages of its production process.
According to the United Nations, over a 100-year period, methane contributed 34 times more global warming than carbon dioxide.
Boom for exporters
Higher prices have been a boon for major LNG exporters such as the United States, Qatar and Australia.
According to Vortexa, Europe has imported about 45% of its LNG from the US in the past two months. Qatar provides the EU with a little more than a fifth of its share.
“More controversially, 13.5 percent of European LNG still comes from Russia’s Arctic LNG project,” Felix Booth, head of Vortexa LNG, told CNN Business.
But producers aren’t moving fast enough to prevent a global shortage this winter.
Rystad Energy said: “While surging demand has spurred the biggest boom in new LNG projects globally in more than a decade, the construction schedule means that material relief is only likely after 2024.”