In the short time since Russia invaded Ukraine, setting off a conflict that shows no signs of ending soon, the world’s energy markets have been turned upside down. The energy transition has been jeopardized, natural gas trade flows have been realigned, and commodity prices have entered a new era of volatility. As Russia started shutting the taps, natural gas was pushed squarely into the epicenter of a tectonic shift in the energy world. There are few precedents for the changes the conflict has effected in the global natural gas market.
'The Ripple Effect' is a 19-page NGI subscriber exclusive that explores some of the major changes that have occurred during this momentous period in the LNG market. NGI’s team of Thought Leaders seeks to answer the question of what comes next, drawing on the experience of covering the conflict’s impact on energy markets to identify the emerging trends and leading factors reshaping the global natural gas trade moving forward.
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European natural gas storage inventories are so full heading into injection season and Asian demand remains weak enough that there is a remote possibility of U.S. LNG cargo cancellations later this summer. Even a limited number of cargo cancellations would mark an extraordinary turnaround from a tight market that’s been shaped by supply fears since Russia invaded Ukraine.
Removing Russian imports from the energy mix means the loss of approximately 140 billion cubic meters (Bcm) of annual supply into the European Union. Sustainable increases in Norwegian production will be able to offset slightly less than 10 Bcm of that loss. The majority of the balance must come from liquefied natural gas imports, fuel switching or permanent demand destruction.
“Putting together financing for one of these projects is already very complex, and I think you’ll see trends that are further complicating the process will be reinforced in the wake of the crisis,” Munton said.
“While there may be regional differences in storage levels and seasonal demand, Europe and Asia remain in direct competition for limited global LNG supplies, and this dynamic is likely to continue unfolding through the rest of the year in the form of higher prices and increased volatility"
El Niño arrives at a time when European natural gas storage inventories are at their highest levels exiting winter in over a decade. Stocks could be full by August. A boost in Asian cooling demand would help liquefied natural gas cargoes find a home amid what’s likely to be weak demand in Europe this summer.
By 2030, long-term and short-term contracts covering around 195 million tons (Mt) of liquefied natural gas could expire, according to data from shipbroker Poten and Partners. Assuming terms of those contracts aren’t extended, it could mean almost 48% of current global LNG supply would be opened to new customers or contract terms.
Developers are facing mounting challenges. Rising construction costs, a limited workforce, and a crowded financing landscape, along with potential pipeline constraints and longer-term concerns over adequate feed gas supplies, cloud the export outlook.