Destination of liquefied natural gas (LNG) Exports by Region

MNCs should carefully monitor developments to account for energy policy shifts throughout Europe, particularly as key energy-transformation deadlines approach, such as the end of coal subsidies in 2025, or 2030 climate targets. Around these periods, heightened instability in energy policy can be expected, which is likely to lead to higher operational costs. MNCs should review forecasts and scenario planning to ensure provisions are in place for structurally high energy prices, with LNG (liquefied natural gas) price to remain elevated relative to pre-2022 levels into the mid-term.

  • US LNG export capacity to reach record high of 0.43 bcm/day in 2023, rising 31%  to 0.63 bcm/day by 2024 amid gold rush of LNG investment.
  • Global LNG imports to the EU dramatically increased to 32% of total global deliveries in 2022, up from 20% in 2021.
  • Energy crisis jeopardises green transition efforts amongst rush of new 20-year LNG contracts binding gas to Europe’s long-term energy mix.
  • China on track to be world’s top importer of LNG for third year in a row, amid flurry of long-term LNG contracts dates up to 2050.
  • The US has replaced Russia as being Europe’s largest supplier of natural gas, with US deliveries increasing 200% since 2022, accounting for 41% of total European LNG imports in 2022. As of January 1st 2022 Russian gas comprised 54% of total LNG imports. By December 2022, it only supplied 12%, with the US primarily making up the shortfall.

Our View

As energy insecurity concerns calm from the chaos of 2022, our outlook for Europe continues to be positive for H2 2023- H1 2024, in which we expect natural gas deliveries to remain increasingly stable amid a surge of accelerating investment in the LNG space across both sides of the Atlantic and continue to see the US being the  primary  LNG supplier to Europe.

Since late 2021, there has been a significant decline in pipeline gas flows from Russia to Europe. Russia’s decision to reduce gas supplies to Europe resulted in last year’s energy crisis, worsened by the the sabotage of Nordstream in September 2022. In July 2023, the remaining LNG infrastructure in Ukraine and Turkstream recorded flows of only  0.45bcm/week, a dramatic 85% decrease from the 3.01bcm/week recorded in July 2021.

Europe has continued to focus energy security efforts on expanding its importing and regasification capacity of LNG dramatically to replace reliance on Russian pipeline gas. As of Dec 2022, there were 31 operational LNG terminals in Europe, with a further 32 terminals under construction or in planning stages.

Germany, which is Europe’s largest consumer of natural gas, relies on foreign gas imports for 95% of consumption. Prior to 2022, Germany  had no domestic LNG terminals or regasification plants ,but since has committed 9.8 billion EUR to build 8 floating LNG terminals, and four permanent onshore terminals in a commitment to energy independence. This plan has drawn wide criticism surrounding overcapacity, with the German Ministry of Economy and Climate action expecting the majority of new plants to be redundant by 2030.

This is wider reflected across Europe, which is expected to have capacity exceeding 400bcm by 2030, despite 2030 forecasted demand at only 150 bcm. This has sparked controversy, with concerns it will incentivise LNG use for importers’ return on investment, jeopardising the current downwards trajectory of demand expected from 2023. The EU’s REPowerEU plan, launched in May 2022, foresees a 40% reduction in natural gas consumption by 2030.

Motivations for excess capacity surround an insurance policy to avoid the winter blackouts of 2023-2024. Despite concerns by the IEA surrounding winter blackouts, EU gas stores are currently sitting at 77.5%, greatly above the average of 61.9% at the same time over the past 5 years. With coiffures likely to be fully filled by late September,  our view sees gas rationing as an increasingly unlikely scenario for winter 23/34.  

Despite less expected constraints on demand throughout H2 2023, LNG markets are likely to remain tight amid both continued limited supply of LNG, and  demand growth in Asia will continue to prop up prices. Furthermore,  China continues striking long-term LNG contracts to secure its energy supply, which is further tightening supply dynamics. Overinvestment in the LNG gold rush of 2022 will largely not see production till 2026-2030, meaning easing of the tight market conditions is unlikely through to 2024, with LNG prices to remain elevated above pre-covid levels.

Price outlook is contingent on two main risk factors: Dutch TTF Natural Gas Futures are priced at $32 for August, peaking at $56 in January. In the case of a colder than average winter, and China’s economic growth surging in H2 2023, existing tightness in the market is likely to lead to futures trading as high as $80, although indicators currently suggest this is unlikely. Still, MNCs should review China’s macroeconomic indicators in coming months, and allow provisions for heightened operational costs through Winter 23/24.

In the meantime, European nations face a tough decision: To negotiate, and continue = long-term LNG projects, which jeopardize decarbonization goals, cementing LNG into Europe’s energy mix till at least 2050, or focus buying spot-LNG and risk continued energy volatility and heightened energy insecurity, the entire goal of the recent wave of LNG investment in the first place.

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