Global LNG market heads into uncharted territory ahead of winter

DAEGU, South Korea, May 26 (Reuters) – Global liquefied natural gas (LNG) buyers and sellers are bracing for more uncertainty over Russian supplies and uncertain demand prospects from Europe and top importer China ahead of the peak winter season, industry executives said. .

Global gas prices hit record highs earlier this year and raised energy security concerns as Western sanctions on Russia disrupted Russian gas supplies to Europe due to the Ukrainian invasion. Moscow called the operation a special military operation.

Beyond unpredictable weather, executives said it was unclear whether Russian supplies to Europe would be cut further. Equally uncertain is whether Europe will be able to build new LNG import infrastructure in time to replace Russia’s large imports, they added.

Sign up now for free and unlimited access to Reuters.com

Another question is when China will lift its COVID restrictions that drastically reduced imports in the first five months of the year.

“We have a lot of uncertainty about what’s going to happen next,” Shell executive vice-president Steve Hill said. (shell)said at the World Gas Congress.

“If we convert the volume of Russian pipeline gas going into Europe in 2021 to LNG equivalent, and add the volume of LNG delivered to Europe in 2021, that’s 200 million tons of LNG equivalent. That’s half the size of the current (global) LNG industry .”

He added that infrastructure constraints that have arisen as gas flows change from west to east rather than east to west make it “more complicated than we initially thought.”

Peder Bjorland, Vice President of Gas Marketing and Trading, Equinor (EQNR.OL)The changing flows have created a “weird market” in which some countries in Europe, such as the UK, are oversupplied, but there is no infrastructure to deliver gas to demand centres such as Germany, he said.

Executives say this has created a large price gap between the UK’s national equilibrium point and the Dutch wholesale gas price, which could incentivise infrastructure investment to reduce bottlenecks. But they added that building this infrastructure would take time.

Germany is building an LNG terminal and has contracted a floating storage and regasification unit.

“It’s a race against time. We think the regas facility might be up and running by the end of winter, but probably not before winter starts. So it’s a very delicate balance,” Global Michael Stoppard, head of natural gas strategy, said at S&P Global Commodity Insights.

A harsh northern hemisphere winter could also spark competition for LNG between Europe and Asia and push up prices, executives said.

Anatol Feygin, executive vice president of Cheniere Energy, said: “As we head into winter…markets like Asia are really starting to scramble for these cargoes.” (LNG.A)Say.

However, buyers may be more prepared to go into this winter than last year due to minimum inventory levels in European countries such as Germany and Italy, an executive at a Chinese gas importer said.

Buyers building up inventories ahead of winter propped up spot LNG prices in Asia near triple their May 2021 levels, which were unusually high for a low demand season in the second quarter.

“This year is not so pessimistic because everyone is preparing for winter,” said the executive, who declined to be named because of company policy.

Meg O’Neill, chief executive of Woodside Energy Group, said she expected LNG prices to remain high next year as the market adjusts to supply disruptions.read more

Market uncertainty and price volatility have prompted buyers in Asia and Europe to seek long-term supplies.read more

Sign up now for free and unlimited access to Reuters.com

Reporting by Florence Tan and Joyce Lee; Editing by Sonali Desai and David Evans

Our standard: Thomson Reuters fiduciary principles.