A volatile start to the year | What's ahead for 2022? | EU's 'green' label on gas

Sindre Knutsson, Vice President

Gas & LNG Markets Research

Welcome to our first Gas & LNG Markets newsletter.

After going through a turbulent 2021, where we ended the year with record-high gas prices, I wanted to take the opportunity to reflect on some of the uncertainties and drivers of the market in the coming year.

Some key observations:

What will drive gas and LNG prices? Will the extreme volatility continue?
Will the European market balance improve? How will this affect the LNG Market?
Will policymakers consider gas as a green investment? How will this affect natural gas and LNG demand in the long term?
How much LNG and projects FIDs are needed to meet gas demand in the different scenarios?

Overall, there is considerable uncertainty and different opinions on how the gas market will develop in the short term and in the long term.

For myself and the Gas Market and LNG Market Solutions team, we will work hard in 2022 to provide our clients with detailed data and analytics to help increase transparency and reduce uncertainty in the market.

We will also be launching some exciting updates across our Gas and LNG Market Solutions, including detailed degree scenarios covering long-term supply, demand, and trade of natural gas and LNG. We will also be rolling out a very comprehensive new LNG Trading Solution. The solution will provide you with research, pricing, and fundamentals into the LNG Markets.

There is no doubt that 2022 will be an exciting year, and we look forward to sharing more updates in the coming months.

Thank you for reading.

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Rystad Energy Press Releases

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Five topics to watch in 2022

As amply demonstrated through 2021, the rising use of imported LNG in Europe and Asia, a coalescence in global gas markets and increasing gas-on-gas spot trading means that what happens in one region now swiftly impacts another. A case in point is Europe, where uncertainty over pipeline import volumes combined with domestic production and storage issues mean that Russia now implicitly influences global LNG shipments and spot prices. Combine this with climate risk factors – in the form of physical impacts due to more extreme weather events and transitional impacts in the form of tighter emission reduction policies, a changing power generation mix and shifting geopolitical preferences – and it is no surprise that gas markets are facing increasingly challenging times. Expect the rollercoaster ride to continue through 2022 as a sensitive market responds to a host of uncertainties. In this commentary, Rystad Energy shares views on the top five issues most likely to play out on the global stage this year, as China becomes the world’s leading LNG buyer and the US the world’s leading LNG seller, against the backdrop of Europe’s increasingly fractious relationship with Russia.

Risk skewed to cautiously bearish

We see near-term price risk skewed to cautiously bearish amid expectations of mild temperatures, robust LNG imports into Europe, a recovery in flows from Norway, and low buying interest in Asia.

In Europe, the bearish risk on the TTF trading hub was balanced by an unplanned outage at the Troll gas field this week, leading to a brief drop in volumes from Norway which is expected to be resolved shortly. Gas-storage levels have dropped to 46% of notional capacity, a sharp 11% decline in volumes on the week.

A wave of LNG supply from the US and declining Asian LNG prices dented the upward price pressure on the TTF. European regas terminals are sending robust volumes of LNG into the pipeline networks, with the 30-day moving average utilization ticking upwards sharply from around 52% in early January to nearly 70% at the time of writing. Near-term weather forecasts point to above-normal temperatures, dampening the demand outlook for heating. The Germany-Poland section of the Yamal Europe pipeline has operated in reverse mode for nearly a month now, indicating market participants prefer to use up gas from storage and potentially restock once prices have declined.

EU’s ‘green’ label on gas and nuclear aimed at smoothing energy transition

The European Union (EU) has recently published plans to temporarily classify certain natural gas and nuclear energy projects as ‘green’ in a move designed to help it more smoothly transition the power sector to net zero by 2050 and boost investment in lower-emissions technologies. This proposal will allow certain natural gas and nuclear investments to be included in the EU investment classification system that is helping finance the energy transition, also known as the EU Taxonomy. In this commentary, Rystad Energy assesses the implications of the new classification for gas and nuclear generation and what it means for the share of natural gas in Europe’s power mix. Overall, Rystad Energy forecasts that gas-for-power demand in Europe will peak at 160 billion cubic meters (Bcm) in 2024, compared to around 130 Bcm in 2021, with our long-term forecast suggesting gas use in the power sector will fall by 66% between now and 2050 to reach just 44 Bcm by mid-century.