05/05/2023
Source: Energy & Management Powernews
The situation on the international gas markets has eased significantly, according to the International Energy Agency. But there is no guarantee that this will remain so.
At the end of the heating season in Western Europe, gas storage facilities are better filled than they have been for a long time. The comparatively mild winter and correct measures of the policy had led to a significant relaxation, it says in the gas market report of the International Energy Agency (IEA) on the first quarter of 2023.
Gas now costs less than in the summer of last year, but still "significantly more than the average of recent years". The drop in demand has minimized recourse to gas storage in Europe and the U.S., he said. Less gas will therefore be needed this summer to replenish storage.
But that should not be misunderstood, energy experts in Paris warn: "Global gas supply will remain tight in 2023, and the global supply-demand balance is subject to many uncertainties." These included the availability of liquefied natural gas (LNG) and a further decline in Russian supplies through existing pipelines, in addition to the weather.
World consumed less gas in 2022
Worldwide gas consumption fell by 1.6 percent in 2022, according to IEA calculations. This year, one does not expect a revival of demand in Paris. In Europe, the 13 percent rise in prices was primarily responsible for this, it said: Industry had cut production, and private households had turned down their thermostats. Demand in the 2022/23 heating season was 16 percent lower than the winter before.
In contrast, demand was down only 0.6 percent in the U.S. and 2 percent in Asia. While households held back, power plants in the U.S. and Canada used significantly more gas.
In Japan, the world's largest LNG importing country, demand fell by 3 percent. The main beneficiaries of the high prices were suppliers of LNG, which significantly expanded its share of the global gas market: 6 percent more LNG was sold worldwide than in 2021, and sales doubled to $450 billion.
Europe causes LNG boom
The most important cause of the LNG boom was a 63 percent increase in shipments to Europe. Although natural gas prices have declined in recent months, they are still comparatively high, the IEA report adds
The China uncertainty factor in LNG
In the face of a resurgence in Chinese demand, the downward trend is not assured. Following the lifting of Covid restrictions and a 1 percent drop in demand last year, the People's Republic's LNG demand could easily be 10 percent higher this year, or more if prices continue to fall. That could lead to a trend reversal in LNG prices, he said.
Forecasts, however, are fraught with great risk, IEA expert Keisuke Sadamori said at the report's launch: "China is the big unknown this year." Despite high demand, he said, LNG supply grew comparatively little in 2022 because there was little expansion of natural gas liquefaction capacity. In particular, the Freeport (U.S.) facility, one of the world's largest terminals, required longer maintenance than planned. And despite high prices, there was little investment in new liquefaction terminals.
Hesitation on long-term commitments
The IEA sees the cause as the rising cost of such investments and a lack of contractual commitments to take liquefied natural gas. Apart from China, potential buyers were reluctant to commit to long-term offtake of large volumes of LNG given the high price levels and their climate policy goals to reduce CO2 emissions.
Despite this, negotiations between investors and potential buyers of new supplies are now well underway, he said. This is especially true for new projects in the U.S. and Qatar, he said.
Author: Tom Weingärtner
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