On April 1, a ship chartered by the company BP which fueled Asia from Texas changed course after two weeks at sea, according to data from the agency. Bloomberg. A sudden U-turn operated in the middle of the Pacific Ocean, which required paying 1 million dollars in tolls…but above all allowed the LNG carrier to benefit from high bonuses to sell its precious cargo far from its initial destination, in Europe: liquefied natural gas (LNG). A commodity increasingly sought after on a global scale, and now reserved for the highest bidders.
And for good reason, the fossil fuel market is disputed to say the least, at a time when the Old Continent is trying to get rid of hydrocarbons from Russia, which have become undesirable since the offensive in Ukraine. Indeed, to gradually replace the approximately 150 billion cubic meters of Russian gas that they buy each year, the Twenty-Seven are turning massively to LNG, transported by boat from the four corners of the world rather than by gas pipeline. Especially since Brussels must prepare for the possibility that Vladimir Putin himself cuts the valves, after having reduced the flow of gas transiting through Ukraine, and suspended deliveries to Poland and Bulgaria.
Result: already growing in 2021, global demand for LNG is exploding…and supply is not keeping pace. What create a ” structural imbalance “, alerted the professional association of the sector at the beginning of May. And even prepare the ground for a ” major crisis of supply on the globe, recently warned the energy analysis firm Rystad Energy.
A bubbling market
And yet, the rush towards LNG production seems to be well under way, with a ” wave of new projects » already on track to increase the global supply. More than twenty of them, with a combined capacity of 180 million tonnes per year, have recently made progress in development. And imports have exploded, reaching 372.3 million tonnes in 2021, 4.5% more than the previous year, according to the International Group of Liquefied Natural Gas Importers (GIIGNL). Particularly in Asia, under the effect of the economic recovery, and the massive use of fossil gas as a less polluting alternative to coal to supply power stations.
On the European continent, Germany even released, a few weeks ago, an envelope of three billion euros in order to acquire floating terminals capable of regasifying LNG on its soil. A ” first order question “, had insisted at the end of March the main economic adviser to Chancellor Olaf Scholz, Jörg Kukies, while the country does not yet have any infrastructure of this type, unlike France or Spain.
Producing countries are busy
The machine is also set in motion for exporters, who are determined to take advantage of these new outlets. Including Qatar: after having affirmed at the beginning of February that it could not compensate on its own for a volume of Russian gas supply which is counted in tens of billions of cubic meters, the small emirate signed agreements at the end of March with Germany” for their respective business entities to re-engage and advance discussions on the long-term supply of LNG “.
In Norway, thehe energy giant Equinor recently announced that it would restart its huge LNG plant in Hammerfest at the end of May, which was ravaged by a devastating fire in September 2020.
Above all, it is in the United States that the sector is more than ever in turmoil, with projects making it possible to produce more than 40 million tonnes of LNG per year which will be launched this year, estimates S&P Global. That’s more than double what was expected before the gas price explosion last year! In 2021, however, the race was already on, with exports having exceeded those by pipeline for the first time on an annual basis.
In order to accelerate further, the Biden administration thus authorized at the end of March two gas liquefaction terminals of Cheniere LNG, in Texas, to increase the number of countries to which Washington can sell the famous fuel, previously limited to those having signed free trade agreements. On the strength of this boost, the gas industry was put in working order, with in particular the announcement, at the beginning of May, of the American Next Decade, the latter having made it known that Engie would buy 1.75 million tonnes of shale gas per year, from the future Texas Rio Grande terminal from 2026 and for fifteen years.
“In our short-term energy outlook, we expect exports of LNG will continue to lead US natural gas export growth and will average 12.2 billion cubic feet per day in 2022. If materialized, US will overtake Australia and Qatar […] By the end of 2022, once the new Calcasieu Pass LNG export facility is commissioned, the United States will have more LNG export capacity than any other country in the world. We expect relatively high LNG demand in Asia and Europe to support continued US LNG exports,” the Federal Energy Information Administration (EIA) wrote in a note released in late April.
But here it is: like the project in Rio Grande, this runaway will not be enough to relieve the explosion in demand before at least 2024, says Rystad Energy today. Especially since outside the United States, which is ” locomotive figure, before an additional 22.3 million tonnes last year », the total production progresses only modestly. Thus, while global LNG demand is expected to reach 436 million tonnes in 2022, available supply should not exceed 410 million tonnes, according to the analyst firm. Taking into account projects under construction, capacities would increase by only 2% this year, forecasts S&P Global, and by 3% next year. And even by 2026, the planet would only have around a hundred million tonnes of additional LNG.
The reason is primarily material: in order to be transported in liquid form and then regasified, LNG requires the establishment of heavy infrastructure, the construction of which takes several years. Qatar, for example, could not produce much more than currently before 2027, according to S&P.
Even in the United States, maintenance of liquefaction plants, notably at Cameron LNG and Freeport LNG, has already led to a drop in LNG exports in April. And for good reason, the longer and more intensely these installations operate, the more the technical problems can multiply.
So many bottlenecks that promise to intensify international competition for this gas, at a time when the prices of hydrocarbons are already exploding on the markets.
“The stage is set for a sustained supply shortfall, high prices, extreme volatility, bull markets and heightened LNG geopolitics,” said Kaushal Ramesh, principal analyst for gas and LNG at Rystad Energy.
Destruction of the request
Under these conditions, the European Union intends to take concerted action to facilitate access to it for its Member States. Thus, the draft final declaration of the Council provides for a commitment for the joint purchase of gas between European countries, on a voluntary basis. A way to lower the price, by giving the Twenty-Seven a stronger bargaining power against suppliers, who generally sell to the highest bidders.
But in an increasingly competitive environment, such a device may not be enough. While the European Commission is due to present its plan on Wednesday to turn its back on Russian hydrocarbons, called REPower EU, all eyes will be on the alternatives proposed. Because a crisis such as the one that is looming in the gas sector could turn out to be very ” painful from an economic point of view, by leading to a destruction of demand from certain industrial players, forced to lower their production despite chain consequences, warns Rystad Energy.
There ” storm to come could even, in the extreme scenario of a very cold winter, threaten the residential sector “, warns the cabinet. In other words, aggravate a little more the fuel poverty of the most modest citizens, who find themselves faced with an uncontrolled increase in bills.
So many alerts which should push the European executive to question the implementation of sobriety measures, in order to act in a controlled manner on the demand for energy, recommend several experts in the sector. A return to a form of “waste hunting” which remains politically taboo, but could well prove necessary in the event of a worsening of the crisis.
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