Global LNG markets brace for unknowns ahead of winter

A liquefied natural gas (LNG) tanker is pulled towards a thermal power plant in Futtsu, east of Tokyo, Japan November 13, 2017. REUTERS/Issei Kato/File Photo/File Photo

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DAEGU, South Korea, May 26 (Reuters) – Global buyers and sellers of liquefied natural gas (LNG) are bracing for greater uncertainty over Russian supplies and a murky demand outlook from Europe and the main Chinese importer as the peak of the winter season approaches, industry executives said.

Western sanctions against Russia over the invasion of Ukraine raised fears of a disruption of Russian gas supplies to Europe, pushing global gas prices to historic highs earlier this year and raising energy security issues. Moscow calls its action a special military operation.

In addition to unpredictable weather conditions, it remains unclear if there will be further cuts in Russian supplies to Europe, the leaders said. It is also uncertain whether Europe can build new LNG import infrastructure in time to replace massive Russian volumes, they added.

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Another question is when China will lift COVID restrictions, which reduced imports in the first five months of this year.

“We have huge uncertainty about what’s going to happen next,” Shell executive vice president Steve Hill (SHEL.L) told the World Gas Conference.

“If we convert the volume of gas from the Russian pipeline to Europe in 2021 to LNG equivalent, and add the volumes of LNG delivered to Europe in 2021, this amounts to 200 million tonnes of LNG equivalent. half the size of the current (global) LNG industry.”

Infrastructure constraints that have arisen as gas flows change from west to east, rather than east to west, have made things “more complicated than we originally thought”, he said. added.

Peder Bjorland, vice president of natural gas marketing and trading at Equinor (EQNR.OL), said changing flows have created a “strange market” where some countries in Europe like Britain are oversupplied. , but there is no infrastructure to move the gas to demand centers like Germany.

This has created a wide price gap between the British National Balancing Point and wholesale gas prices in the Netherlands, which could incentivize infrastructure investment to reduce bottlenecks, executives said. But that infrastructure would take time to build, they added.

Germany is building an LNG reception terminal and has contracted floating storage and regasification units.

“It’s a race against time. We think the regas facilities will probably be operational before the end of winter, but maybe not at the beginning of winter. So it’s a very delicate balance,” said Michael Stoppard, head of global gas strategy. at S&P Global Commodity Insights.

A severe winter in the northern hemisphere could also spark competition between Europe and Asia for LNG and drive up prices, executives said.

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

However, an executive at a Chinese gas importer said buyers were likely to enter this winter more prepared than last year as European countries such as Germany and Italy demanded minimum stock levels. .

Buyers are increasing inventories ahead of winter, supporting LNG spot prices in Asia at nearly three times their May 2021 levels, unusually high for the second-quarter weak demand season.

“It’s not as pessimistic this year as everyone is preparing for winter,” said the executive who declined to be named due to company policy.

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

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