Gas Market’s Delicate Balance Threatened by Weather and Strikes

Don’t be fooled by a sense of relative calm in the global gas market.

(Bloomberg) — Don’t be fooled by a sense of relative calm in the global gas market.

Risks from frigid weather to strikes and China’s appetite for fuel threaten to disrupt the market’s delicate balance, according to executives and analysts at the Gastech conference in Singapore this week. It won’t take much to create another supply squeeze this winter, they warn, emphasizing that the energy crisis is set to continue for years.

“Russian gas is still not flowing to Europe and therefore the whole market situation is tighter,” said Steve Hill, executive vice president of Shell Energy. “LNG prices are still high and we are seeing demand destruction in various markets around the world.”

The caution comes as the sense of urgency in the market has eased from last year. Natural gas prices have dropped from 2022’s record levels, with European inventories at a seasonal high and little competition from Asia for shipments of liquefied natural gas. “We potentially have a little bit too much complacency,” said Hill.

The comments highlight how the impact of Russia’s invasion of Ukraine continues to reverberate across commodity markets. The global gas market is set to remain tight until 2025 when more supply comes online, said Yukio Kani, global chief executive officer of Jera Co., one of the world’s top LNG importers.

Europe’s rush to phase out Russian pipeline gas means the region is far more dependent on LNG, forcing supply to be diverted from Asia. A cold winter or a sudden rebound in economic activity in China — the world’s top LNG importer — could pit Europe and Asia against each other for a limited supply of fuel, threatening a bidding war that could drive prices higher. 

To be sure, no one expects a return to the record-high prices of last year. Mild winter temperatures, coupled with weaker industrial demand, helped the world avoid a crippling shortage in 2022. Still, given the market’s precarious position, minor surprises can have an outsize impact. Harsher weather could spur consumption and send prices higher.

“A couple weeks of colder weather will really exacerbate the situation,” said International Energy Forum’s Secretary General Joseph McMonigle. “There’s going to be greater competition for supplies if we get another situation because of weather or other events.”

China also remains a wild card that could upend the market. LNG imports for the first eight months of 2023 were up 11% from the same period last year, but still aren’t at levels seen in 2021, when the nation was the biggest buyer of the super-chilled fuel.

“If China starts increasing imports again, that would have an impact on Europe,” said Erik Nyheim, chief executive officer of Hoegh LNG Holdings Ltd. in Norway. “There’s a lot of risk and sensitivity in the system still.”

Traders are also carefully monitoring supply outages, including labor activity in Australia that could shut some of the nation’s LNG plants. Partial strikes began on Friday at two export plants that made up roughly 7% of global supply last year.

While the impact of strikes may be limited initially, any prolonged disruption will threaten supplies for the peak northern hemisphere winter season, likely pushing up prices.

“We’re not out of the woods for a few years until supply comes on,” said Colin Parfitt, vice president of midstream at Chevron Corp.

Other spot market news:

  • Tohoku Electric was seeking to purchase an LNG cargo on a DES basis for 2H Sept.-1H Oct. delivery to Japan in a tender that closed Wednesday
  • Total and Vitol won contracts to supply LNG to Bangladesh’s RPGCL at $13.77/mmbtu and $14.97/mmbtu, respectively
  • Angola LNG offered to sell a cargo on a DES basis with delivery windows from Oct. 7-24, with bids due Sept. 13

–With assistance from Dan Murtaugh.

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