The liquified natural gas (LNG) market is exceptionally tight as demand remains high, while stockpiles sit low amid constrained supply. Despite these challenges, however, a crisis in supply is unlikely in gas-hungry Asia and Europe, an expert told Al Arabiya English.
The LNG market saw severe disruption in 2020 as the coronavirus pandemic upended normal supply predictions and delaying key infrastructure development. Demand spikes caused by unseasonably cold temperatures in winter last year, combined with COVID-19 challenges, left countries facing energy shortages and depleted stockpiles while prices spiked.
However, while the challenges facing the LNG market are expected to persist in the near-term, Europe and Asia are unlikely to face a gas crunch this winter, barring significant unforeseen upheavals, Samer Mosis, Manager of Global LNG Analytics at S&P Global Platts told Al Arabiya’s Naser El Tibi.
“Crisis is a big term and I think when we think about crisis we think about power outages, rolling blackouts, things of that nature. But we don’t see that happening. We don’t expect that kind of crisis in Europe or in key Asian markets in the near term,” Mosis said.
South Asia has been critical growth market for LNG in recent years as major energy players in the region, including China, India, and South Korea, have sought to move their energy generation towards gas. This ongoing trend, combined with recent challenges, has led to the current situation with market supply.
“The story of market tightness really starts a year kago. If we take 12 months back in time and take a look where the markets were at, we were in a very over supplied position. But then we had the one-two punch of a cold winter in Asia amid very low storage stocks in the region. That drew all global energy supply into Asia, drawing down European stocks. That was followed directly by a very extended period of cold weather in Europe,” Mosis explained.
Following this extended period of stockpile drawdown, economic activity has improved in China and broad parts of Asia, causing power demands to increase, amid a general COVID-19 recovery.
Mosis was quick to highlight, however, that unresolved questions about the capacity of Europe’s most important gas supplier, Russia, to deliver causing further tightness in the market.
“Russian pipeline supply into Europe really is the determining factor right now around what the marginal cost of supply is globally,” Mosis explained.
Russian supply capacity has always been assumed to “be a given,” he said, but added that this analysis has now been turned on its head.
“Russian pipeline supply into Europe really is the determining factor right now around what the marginal cost of supply is globally … Everybody always assumed that Russia could put gas into Europe if it needed to,” Mosis said.
Despite hopes that the upcoming Nord Stream 2 pipeline might help alleviate Russian supply issues, Mosis noted that situation still remains unresolved.
“We’ve seen Russia repeatedly book lower than expected for space to fill gas into Europe. This happened again this week, and you know there has been infrastructure issues in Russia recently … This has really highlighted to the market that you think Russia is always going to be there, but it might not be able to be. That does inject a lot of bullish sentiment,” Mosis explained.
“The question really is not: Will Nord Stream 2 be there? It will be there. The question is: Will Russia have the gas? How much of the gas will it flow and at what price? And these questions will rather be answered in time, but the uncertainty injects that risk premium into the market and that’s why you see prices at record high in Europe,” he said.
US LNG supply, meanwhile, is the only place that Mosis sees significant growth in production capacity until 2024.
“In that sense, while it will play a key role in balancing global markets, it can’t balance both [Asia and Europe] completely. And this is a setting us up for the position where Asia and Europe are competing for supply, competing [specifically] for the flexible US supply,” he said.
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