The risk of a global natural gas supply and demand boom still exists
Multiple natural gas producing countries are accelerating their pace of increasing production
Since the beginning of this year, major natural gas producing countries around the world have accelerated their pace of increasing production.
The Russian Arctic LNG2 project will transport the first batch of LNG cargo before the end of March. Following the commissioning of the first production line in December last year and the completion of the trial operation of the first natural gas liquefaction storage and handling device in January this year, the Arctic LNG2 project has taken another step forward.
The Arctic LNG2 project is the second large-scale project of Novatek, the largest private natural gas producer in Russia. According to the design, it has three production lines, and after all are put into operation, the total production capacity will reach 19.8 million tons per year, which is crucial for Russia to achieve its strategic goal of increasing LNG production. Russia had previously set a goal to increase the global market share of LNG from 8% to 20% by 2030, and the Arctic LNG2 project is considered key to achieving this goal.
The Arctic LNG2 project has also been sanctioned by European and American countries. Last November, the United States banned its allies from purchasing the LNG produced by the project. Regarding this, Arctic oil and gas development project expert Ben Seligman said, "In terms of construction, sanctions have not had any effect. Currently, the Arctic LNG2 project has completed the first production line, and the design plan for the second production line has also been formed. This also indirectly shows the expectation of sustained growth in global natural gas consumption."
Qatar, another global LNG production giant, announced at the end of February that it will increase its LNG production capacity by nearly 85% from current levels by 2030. Qatar's State Minister for Energy Affairs and President and CEO of Qatar Energy Company, Saad Kabi, stated that the production increase plan will push Qatar's natural gas industry to new highs.
As a major global LNG supplier, Qatar currently has an annual production capacity of approximately 77 million tons, and previously planned to expand its production capacity to 126 million tons by 2027. Qatar Energy Company will add an additional 16 million tons per year by 2030, bringing the total production capacity to 142 million tons per year.
On the road to accelerating capacity expansion, Australia is also not willing to fall behind. Meg O'Neill, CEO of Woodside, the country's largest LNG exporter, recently said, "We are seeing signs of LNG demand growth in the Asian market and will see a considerable amount of new supply at certain time points. However, demand will absorb these supplies in the coming years. Based on this, we are considering accelerating capacity expansion."
"At present, the global natural gas market is mainly distributed in regions such as Europe, North America, and Asia, and is generally in a state of 'supply and demand are booming, and prices are being suppressed'. Sun Xia, Associate Researcher at the Institute of International Studies of the Shanghai Academy of Social Sciences, introduced in an interview with this newspaper that the European market is mainly facing structural adjustment problems, with the proportion of pipeline gas rapidly decreasing, and the demand and import volume of liquefied natural gas continuing to rise.". Affected by the energy transition policy, the demand for natural gas in the European market is on the rise in the short term, but will gradually decrease in the long term. The North American market is currently in a saturated state, so it needs to compete with regions such as Russia, Australia, and Qatar for the Asian and European markets. The Asian market is in a state of "supply shortage" and may face pressure to "meet the constantly increasing demand for natural gas" in the future.
The fierce competition in the natural gas market has caused significant price fluctuations
According to Reuters, Shell, a Dutch company, has released a report predicting that global demand for liquefied natural gas will increase from 404 million tons in 2023 to 625-685 million tons in 2024.
"The global demand for natural gas is showing a large-scale and sustainable upward trend." Sun Xia said that this "strong growth" trend is mainly due to four reasons: firstly, the rapid recovery of the global economy has led to a surge in natural gas demand; Secondly, countries in the "global South" place greater emphasis on the quality of economic development and are beginning to find a balance between addressing climate change and developing their economies, increasing the proportion of natural gas in the energy structure; Thirdly, due to geopolitical factors such as the Ukraine crisis and the Palestinian Israeli conflict, some regions and countries have significantly increased their natural gas reserves and imports to ensure energy security.
Against the backdrop of strong supply and demand, global fluctuations in liquefied natural gas prices have attracted much attention. According to Reuters, the tight supply of liquefied natural gas once constrained consumption growth, and also caused prices and price volatility to be higher than historical averages. According to the Financial Times, data from the London Intercontinental Exchange shows that the Dutch Centre for Transfer of Ownership (TTF) natural gas futures, which serves as the benchmark price for European natural gas, fell 2.5% to 30.15 euros per megawatt hour. According to a report on the European news television website, natural gas prices in the UK sharply decreased by 50% in February compared to the same period, falling below 25 euros per megawatt hour.
"In the winter of 2023, natural gas prices in Europe and North America plummeted significantly." Sun Xia explained that global natural gas has not formed an international market like oil. The United States is currently the world's largest exporter of natural gas, and after nearly a decade of rapid growth in natural gas production, prices have approached historical lows. Due to the decrease in natural gas supply from Russia, Europe has seen the United States and Qatar quickly make up for the shortfall in production. A large number of exporting countries have invested in the natural gas market to expand production capacity, but market demand is limited. The fierce competition in the natural gas market has caused significant price fluctuations.
According to the National News of the United Arab Emirates, the price of liquefied natural gas in the main markets of Northeast Asia has dropped to $8.30 per million British thermal units, the lowest level since April 2021.
"Seasonal changes are also the main reason for the large fluctuations in natural gas demand and market prices." Sun Xia said that Europe is located in the cold northern hemisphere, and natural gas is mostly consumed for heating. However, in winter heating in Asia, coal is mainly used, and due to factors such as holiday duration, the actual demand for natural gas is not high; In the summer, many Asian countries switch from coal to natural gas for power generation in order to reduce carbon emissions, leading to a surge in natural gas demand.
"The global natural gas market is showing a trend of differentiation in trading methods." Sun Xia explained that many importers no longer sign long-term contracts, but instead use short-term contracts or spot trading. Asian countries tend to trade in currencies other than the US dollar to avoid risks caused by factors such as prices and sanctions.
To provide opportunities for promoting energy cooperation
Industry insiders believe that as Asia reduces coal consumption, the demand for LNG in the region is becoming stronger. At the same time, the suspension of LNG export project approvals by the United States has brought a huge gap to the global LNG supply side. Whoever can quickly fill these gaps can gain more market share from LNG trade.
Tom Mazak Manser, head of natural gas analysis at ICIS, a global independent commodity market information service provider, said, "From now until 2030, Asian natural gas demand will show a rapid increase." US credit rating agency Fitch predicts that from 2023 to 2033, Asian natural gas consumption will have an average annual growth rate of 1.9%, and total natural gas consumption will increase from 921 billion cubic meters in 2022 to 1132 billion cubic meters in 2033. It is expected that the import volume of LNG in Asia will further increase from 324 billion cubic meters in 2023 to 448 billion cubic meters in 2033.
"In the foreseeable future, the world still needs more natural gas." Sun Xia said that the "strong growth" in natural gas demand is expected to mainly occur in Asia and Europe. The growth rate of natural gas demand in Asia and other emerging countries may exceed that in Europe, mainly due to the generally improved living standards, population growth, economic development, and other factors in these regions. The expansion of natural gas demand in the European region is mainly due to the temporary adjustment of energy consumption structure and import structure in Europe.
The latest report released by the International Energy Agency shows that the delayed start and production of liquefied natural gas projects, tense geopolitical situations, worsening raw gas issues, and intensified shipping restrictions are all potential downward risks that may cause fluctuations in natural gas supply and demand and prices in 2024.
"The growth of global natural gas demand may pose significant risks to the economies of importing countries. The demand for natural gas in countries in Asia and Europe varies greatly with the seasons. When in a period of seasonal changes or an increase in natural gas demand, insufficient supply or high prices can lead to an electricity crisis." Sun Xia said that from a policy perspective, the energy industry chain supply chain in the United States, driven by "decoupling" and "de risk" policies, may pose a threat to the stability of the global natural gas market.
The accelerated global energy transformation may also impact the natural gas market. Sun Xia said that when significant progress is made in the field of energy technology, competition for scarce metals is less affected by geopolitical factors, breakthroughs are made in clean and efficient utilization of coal, scaling up hydrogen energy, and expanding the scope of nuclear energy consumption, global natural gas demand may experience a certain degree of contraction.
"But from a global economic perspective, countries located in the northern hemisphere can form seasonal complementarity in natural gas demand changes." Sun Xia analyzed that Europe has higher natural gas demand in winter, while Asia needs natural gas more in summer, which provides an opportunity for energy and economic cooperation between Asian and European natural gas importing countries.