Liquefied natural gas will have a less frenzied 2023



  • Europe’s needs will remain the key factor for the LNG market

Last year was the year of liquefied natural gas. Russia’s decision to curtail pipeline gas supplies to Europe sent prices through the roof and threatened to push Europe into recession. The panic-induced price spike of 2022 probably won’t recur this year—but betting on lower prices would also be unwise.

LNG prices have slid after a much milder than expected winter in Europe. Asian LNG spot prices have fallen nearly 67% from the record highs reached in August last year. They currently sit around $23 per million British thermal units (MMBtu), according to Refinitiv, down about 32% since early December—although still more than twice as high as in mid 2021.

The price of the supercooled fuel will, however, probably struggle to chill further from here. Europe’s struggle to reorient toward clean energy and make up for lost Russian supplies will be a multiyear battle. And China’s reopening means Asian demand should remain strong too, even with global trade weakening.

During 2022, LNG imports rose to make up 39% of combined European Union and United Kingdom gas imports—against just 23% in 2021, according to S&P Global. While Northwest European storage remains 82% full, indicating comfortable storage levels through winter, storage sites will need to be refilled in the late spring—right around the time China’s rebound could start to gain some real steam.

The International Energy Agency reckons the EU would face a shortfall of 27 billion cubic meters in 2023 if gas deliveries from Russia are zero and China’s LNG demand rebounds to 2021 levels. Research and consulting firm Wood Mackenzie says European prices in 2023 will be lower than in 2022 but still above $25 per MMBtu.

Nonetheless while China’s reopening will prove a fillip for LNG demand, it probably won’t be the key factor for prices in 2023. Natural gas made up only 8.9% of China’s overall energy demand in 2021. And China, with its massive coal power capacity and still-functioning Russian and Central Asian gas pipelines, has some clear alternatives to pricey LNG. China’s natural gas imports by pipeline were 33% higher last year than in 2020, according to data provider CEIC, while LNG imports were 5% lower.

China’s current policy environment—focused on boosting growth and energy security—also isn’t necessarily conducive to a massive rise in LNG imports. Wood Mackenzie sees Beijing’s focus on cost control and energy security—as well as record natural gas production in 2022—as limiting coal-to-gas switching across the power and heating sectors in the near term. And Citi expects China’s LNG imports in 2023 to remain relatively flat, assuming a moderate 5% growth in domestic consumption.

Europeans looking askance at China’s reopening probably have less to worry about on the LNG front than they think. But pricey LNG, at least compared with prewar levels, won’t be going away soon either.

This story has been published from a wire agency feed without modifications to the text

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.


Switch to the Mint app for fast and personalized news - Get App