Reflecting on 2023 and Anticipating the Future: What Lies Ahead for Gas & LNG Markets
In this retrospective, Xi Nan, Senior Vice President Gas & LNG Market Research, takes us on a journey through the past months, offering insights and projections as we look ahead to 2024.
After a super spike in 2022, international gas prices have bounced back in 2023. Both Title Transfer Facility (TTF) and Asian spot LNG prices started seeing single digits from May, mainly supported by healthy storage levels and muted spot LNG demand. Gas prices started inching up amid heatwaves in the northern hemisphere during the summer. However, the market didn’t rest for long.
Uncertainty created by the prospect of strike action at major LNG export projects in Western Australia kept TTF fluctuating in August. Meanwhile, Asian importers took a wait-and-see approach amid comfortable-to-high LNG inventories. Entering October, while Asian spot LNG price was hovering around $14 per million British thermal unit (MMBtu) ahead of the winter season, TTF front-month volatility intensified, increasing from low-$11/MMBtu to mid-$16/MMBtu – a seven-month high – in the second week of October. Gas field outages along the Norwegian Continental Shelf, the damaged subsea pipeline between Finland and Estonia, the shutdown of the Tamar gas field amid the escalation of the Israel-Hamas conflict, and the return of strike risks at Australian LNG facilities have contributed to TTF fluctuations.
Despite gas storage reaching above 97% full in Europe in mid-October, we continue to see an underlying fundamental tightness. On the supply side, global LNG production is forecast to grow by only 1% this year compared to 2022, due to a lack of project start-ups. Unplanned outages have cut over 13 million tonnes per annum (tpa) of global supply capacity so far this year. Also, the risk of strikes at Australian LNG facilities is not completely ruled out, while the Israel-Hamas tension suggests a highly uncertain shut-in duration at the Tamar field which impacts regional and international gas prices as well as Egyptian LNG exports.
On the demand side, the weather will decide. European gas demand dropped by 14.5% year-on-year in the first three quarters of 2023. Demand will pick up in the event of a cold wave. We keep our estimate for the difference between a mild and a cold winter at up to 30 billion cubic meters (Bcm) of European demand, which is around 6-7% of Europe’s total demand. In Asia, Chinese gas demand realized a 7.6% year-o-on-year growth during January and August 2023, against our estimate of a 7.7% growth at the beginning of 2023. As such, we expect gas demand in China to keep growing into the winter. The difference between a mild and a cold winter is about 10 Bcm in China and can be supported by alternative sources of supply from domestic fields, pipeline and LNG imports. In a cold winter scenario, competition between Europe and East Asia on LNG supply should be expected. Any unexpected supply disruption can potentially shake the market this winter.
Spot trading activities normally pick up during the winter season. The netbacks from cargoes scheduled to load mid-December from US LNG facilities to Western Europe via the Panama Canal are at mid-$14/MMBtu on 23 October, about $0.5/MMBtu lower than East Asian destinations, as suggested by the forward curves. Fundamentally, global LNG supply has been sold under term contracts for the next two years. New contracts signed in recent years supporting project final investment decisions (FIDs) mainly enter into force post-2026. About 46 million tpa of LNG term contracts have been sealed so far in 2023, including the latest Qatari deals with TotalEnergies (27-year 3.5 million tpa to France), Shell (27-year 3.5 million tpa to the Netherlands) and Eni (27-year 1 million tpa to Italy). To compare, 53 million tpa of LNG contracts were signed in the first 10 months of 2022, and an additional 18 million tpa of deals were concluded last year in November and December.
Lower contract signing activity suggests investors are cautious over the prospect of LNG projects this year, given the relatively bearish market sentiment compared to 2022. So far in 2023, three projects have reached FID, including Sempra’s Port Arthur LNG (13.5 million tpa capacity), Venture Global’s Plaquemines LNG (10 million tpa) and NextDecade’s Rio Grande LNG (17 million tpa), all in the US. What comes next?
QatarEnergy’s QatarGas train 12 and 13 from the North Field expansion (15.6 million tpa) confirmed international partners. Woodfibre LNG operated by Pacific Oil & Gas has sold all its 2.1 million tpa capacity to BP and started construction of some modules. If all goes well, both projects could take FID by the end of 2023. Looking into 2024, Cheniere’s Corpus Christi Midscale T8-9 (3.3 million tpa), Sempra’s Cameron expansion (6.8 million tpa), Venture Global’s Calcasieu Pass 2 (10 million tpa) and CP2 LNG (9.9 million tpa), Delfin’s 3.5 million tpa floating liquefied natural gas (FLNG) project, Mexico Pacific’s 14.1 million tpa LNG project, ADNOC’s 9.6 million tpa Ruwais LNG and Total’s 4 million tpa Papua LNG look promising.
Rystad Energy is dedicated to delivering clear and deep market insights in a timely manner. The market calls for company portfolio position analysis and short-term gas price forecast. We also see an increasing amount of interest in the long-term fundamentals and the role of gas in the energy transition. In response, Rystad Energy is working to provide short-term forecasts on monthly trades and gas prices as well as long-term analysis of natural gas and LNG scenarios. Research on biogas and biomethane is also under development. Stay tuned. The market doesn’t sleep, neither do we.