The global liquefied natural gas (LNG) market is expected to take several years to adjust to last year’s shake-up, and high prices will spur the hunt for long-term deals, industry executives said at the India Energy Week conference.
After Russia slashed piped supply to Europe following its invasion of Ukraine, gas prices hit new highs and Europe bought record volumes of LNG.
Prices for both Europe’s benchmark gas and Asian spot LNG (LNG-AS) hit milestone highs.
“What I foresee in the coming years, I see the tensions that we observed in 2022 are not over for 2023,” said Thomas Maurisse, senior vice president LNG at France’s TotalEnergies TTE.
“Even if Europe is now more confident that we will pass winter 2023, it will still be difficult and there might be demand coming back in Europe and in China.”
Supply from Russia could fall further while growth in LNG supplies “will not be enough” this year, possibly meaning prices remain “a little bit higher in the years to come” despite having softened recently, Maurisse said.
“Only (from) 2026-2027, when we will have a new wave of energy from the U.S. and from Qatar, that the situation may ease a little bit.”
LONG-TERM DEALS SOUGHT
Industry executives and governments have touted gas as a crucial transition fuel while switching to renewable energy sources, but last year’s high prices had kept many buyers priced out.
While Asian spot LNG prices as of last week have eased by more than 70% from their record levels to $18.50 per million British thermal units (mmBtu), they remain high compared to their previous single-digit prices, leading buyers to seek term contracts to avoid spot market volatility.
“What the industry has realised now is that they can’t have long-term business on spot purchases. So the need is to have long-term contracts, a good mix of long-term, short-term and medium-term contracts,” said Akshay Kumar Singh, CEO of India’s Petronet LNG PETRONET.
“Long-term contracts and the increase in domestic (gas) production during this crisis have definitely helped our country,” he said. “Going forward, we think we should move more contracts on (to a) long-term basis.”
The company said it will also seek another 0.6 mtpa from the Gorgon LNG project in Australia, which it already has a contract with.
“If it is available at a reasonable price, a lot of gas can come to the country,” said Singh, adding that current spot rates were still “on the higher side” at around $16-17/mmbtu versus current long-term contract prices of $12-13/mmBtu.
Andrew Barry, chairman of LNG market development at ExxonMobil, said that long-term supply contracts have helped energy companies navigate phases of demand destruction and low investor confidence due to volatility in the short-term markets.
Source: Reuters