Global growth in LNG demand is shifting from Asia to Europe due to Russia sanctions

FILE PHOTO: An LNG tanker is towed to a thermal power plant in Futtsu, Japan
FILE PHOTO: A liquefied natural gas (LNG) tanker is towed towards a thermal power station in Futtsu, east of Tokyo, Japan November 13, 2017. REUTERS/Issei Kato

March 9, 2022

By Isabel Kua

SINGAPORE (Reuters) – Asia’s liquefied natural gas (LNG) demand growth may cool this year as buyers balk at record-high spot prices, which are being pushed even higher by Europe’s switch to super-refrigerated fuel amid the Ukraine crisis, analysts and industry sources have said .

High spot prices since late last year have already slowed trade and are likely to dampen demand growth for the fuel in Asia — the largest consuming region — even as some countries face growing gas supply shortfalls as domestic production falls.

This comes at a time when new LNG buyers are set to emerge in Asia, the Philippines and Vietnam later this year.

“The LNG market has performed unfavorably for buyers as supplies are expected to be tight in the 2021-2025 period while post-pandemic demand is picking up,” said Vietnam’s state-owned PV Gas company, which is on trial for the country’s first liquefied petroleum terminal Natural Gas (LNG) in the fourth quarter.

“This will lead to a sharp increase in prices over the next few years, with no signs of short-term relaxation.”

Europe increases LNG import demand after local gas prices surge above international LNG price

Asia’s benchmark spot LNG price, assessed by S&P Global Platts, known as Platts JKM, rose to a record $84,762 per million British Thermal Units (mmBtu) on Monday on strong prices in Europe as buyers pushed the global Search markets for LNG cargoes to replace Russian natural gas and LNG.

It is currently trading at around $51 per mmBtu, compared to $6 in March 2021, according to data from Refinitive Eikon.

Consulting firm Wood Mackenzie expects growth in LNG demand in Asia to slow to 2% in 2022, from 8% in 2021.

Global electricity-generating fuel prices are rising to record highs

“In contrast, European LNG demand is expected to increase by at least 20% in 2022, reflecting lower Russian pipeline flows and the need to replenish depleted European gas storage facilities,” said Valery Chow, vice president at WoodMac.

Natural gas and electricity prices hit all-time highs in Europe as the European Union launched plans to reduce the EU’s dependence on Russian gas by two-thirds this year and end its reliance on Russian fuel supplies “well before 2030”. Europe, which relies on Russia for 45% of gas supplies, could demand more US LNG.

LNG imports by key region and country

“Asian buyers have to pay a premium to pull cargo across from Europe, so Asian LNG spot prices are supported by European gas prices,” said Edmund Siau, LNG analyst at consultancy FGE.

However, Wei Xiong, an analyst at Rystad Energy, said Asia’s willingness to pay for LNG may not be as high as Europe’s, so the upside risk to Asian spot prices is likely less than that of TTFs or Dutch gas prices in Europe.

“Demand growth in India is likely to be subdued due to very high spot prices and an increase in domestic production,” she said.

Rising prices and limited supplies in a tight global market could undermine demand.

“This can lead to demand destruction as switching from gas to coal or from gas to oil would become more economical,” Rystad Energy analyst Lu Ming Pang said.

However, the world’s leading LNG importer China will continue to drive demand growth in Asia this year as it adds more regasification terminals to move away from coal in the power and industrial sectors.

According to Rystad Energy, China’s imports will increase by 8.5 million tons year-on-year in 2022, accounting for about 45% of Asia’s LNG import growth.

Still, China-based industry players are less optimistic, forecasting growth of 4 million tons or less this year, adding that China could largely shy away from the hot-spot market by looking forward to newly signed futures shipments Countries like Qatar and Qatar is leaving United States.

(Reporting by Isabel Kua; Additional reporting by Khanh Vu in Hanoi, Marwa Rashad in London and Chen Aizhu in Singapore; Editing by Florence Tan and Christopher Cushing) Global growth in LNG demand is shifting from Asia to Europe due to Russia sanctions

Caroline Bleakley

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