August 15, 2022

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Report: Case for Asian LNG Demand Growth 'Crumbling'

Asia might not be the burgeoning demand market that LNG operators worldwide have poured untold billions of dollars into cultivating.

The Institute for Energy Economics and Financial Analysis (IEEFA) not only expects natural gas demand in Asia to decline this year as soaring European demand pushes prices to levels many Asian countries can't afford, but its study cites International Energy Agency (IEA) findings that there will be 60% less demand growth through 2025 than in the previous five-year period.

It's also telling that the IEA’s latest outlook for Asian gas demand growth through mid-decade is 65 billion cubic meters (6.3 billion cubic feet per day) less than it forecast just last year, the IEEFA said. It noted that the moves made today to lessen demand for too-pricey LNG exports will continue to deflect cargos for years to come even if prices come back to earth.

“Less than one year into higher prices, LNG markets are already seeing a major realignment of demand away from Asia. Should price spikes and volatility continue over the next several years, downward pressures on Asian LNG demand may accelerate, permanently impairing long-term regional demand growth,” said Sam Reynolds, an energy finance analyst with IEEFA and author of the report The Economic Case for LNG in Asia is Crumbling. “Financiers and investors in new LNG projects must take note.”

Rapid Pivot

Energy Intelligence calculates that prices in Northeast Asia have soared to around $45 per million Btu from less than $18/MMBtu this time last year. As a result, Asian markets have pivoted from gas at breakneck speeds, with LNG sales to Asia down 6% year over year, according to the IEA.

Perhaps no developing market is more important to global LNG operators than China, which has seen LNG sales plummet 20% from this time last year. And the market potential lost will not fully recover as China develops new coal-fired, not gas-fired power generation, the report said.

It has also given renewables a significant boost in China, with 120 gigawatts of renewable capacity set to be rolled out this year, a 40% increase in the pace seen over the past five years. That's enough capacity to displace more than 2 billion cubic feet per day in gas burns.

Moreover, Chinese buyers are said to be eschewing LNG spot market purchases for the rest of the year, while pipeline gas imports have risen 60% through April. Plans are also in place to expand pipeline capacity from Russia and Turkmenistan by 100 Bcm per year (9.5 Bcf/d), further eroding the future need for LNG imports.

Meanwhile, the IEA says while South Asian countries have tried to maintain LNG imports, bloated price levels have led to severe fuel shortages and load shedding. Even mainstay rich markets like Japan and South Korea are pushing back, as governments with a pro-nuclear bent take charge.

“Exorbitant prices and unreliability of supply are undermining industry-driven narratives that LNG is a viable ‘bridge fuel’ from coal,” Reynolds said. “Continuous demand growth at persistently high prices will likely prove fiscally unsustainable for emerging markets.”

Tom Haywood, Houston

Gazprom Supplies Additional Gas to Hungary

Russian gas giant Gazprom has started supplying extra gas to Hungary via the Turk Stream pipeline, in addition to deliveries under Hungary's existing long-term supply deal with Gazprom, according to an official at the foreign ministry in Budapest.

Since Russia invaded Ukraine in February, the EU has been trying to reduce its dependence on Russian pipeline gas and doing its best to increase imports from other sources, including LNG.

However, Hungary has sought additional volumes from Russia and is believed to be securing favorable prices that are lower than Europe's recent sky-high spot prices, taking advantage of relatively cordial ties between Budapest and Moscow.

Hungary — which has taken in war refugees from Ukraine — secured an exemption from the EU's ban on imports of Russian crude oil and has argued that European sanctions against Russia are causing too much economic pain for EU nations.

The country's autocratic Prime Minister Viktor Orban is often described as an ally of President Vladimir Putin who has led Russia for more than 20 years.

Extra Volumes

Gazprom will supply an extra 2.6 million cubic meters of pipeline gas a day until the end of August, Foreign Ministry State Secretary Tamas Menczer wrote on Facebook.

Moscow and Budapest are currently negotiating extra volumes for September, he added.

Gas transmission data show that gas flows via the onshore segment of Turk Stream that crosses the Serbian-Hungarian border rose to 21.3 MMcm/d on Friday-Sunday from around 18.7 MMcm/d previously.

Hungarian Foreign Minister Peter Szijjarto negotiated extra gas imports during a visit to Moscow last month. Budapest was seeking an additional 700 MMcm of gas to build up its storage volumes ahead of the winter.

Hungary's gas storage facilities are now 57% full, compared with an EU average of 74%, according to data from Gas Infrastructure Europe.

Hungary, which depends heavily on Russian gas, signed a new 15-year contract with Gazprom last year for 4.5 Bcm/yr.

That broke down to 3.5 Bcm/yr via Turk Stream and 1 Bcm/yr from Austria's Baumgarten gas hub that is normally supplied via Ukraine.

Hungary also imports Russian gas under deals with a shorter duration. It imported 8.6 Bcm from Russia in 2020.

Low Flows to Europe

Gazprom has been increasing its supplies to Hungary while restricting its overall exports to Europe.

The Russian gas giant cut supplies via the Nord Stream pipeline to 40% of capacity in mid-June and then 20% of capacity — some 33 MMcm/d — in late July, citing problems with the repair of gas turbines for the pipeline caused by Western sanctions.

Its European customers have dismissed Gazprom's arguments, suggesting that Moscow is deliberately cutting gas flows to ramp up pressure on Europe and undermine political and public support for Ukraine.

Transit of Russian gas to Europe via Ukraine also remains restricted to slightly more than 40 MMcm/d, or just above half of the currently available capacity.

As a result of the increase in supplies to Hungary, Turk Stream is now the top route for Russian gas entering Europe in terms of daily volumes (see graph). That was also the case for most of July.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Created with Highcharts 9.0.0(MMcm/d)RUSSIAN GAS FLOWS VIA KEY ROUTES TO EUROPENord StreamUkrainian TransitTurk StreamMay 01May 04May 07May 10May 13May 16May 19May 22May 25May 28May 31Jun 03Jun 06Jun 09Jun 12Jun 15Jun 18Jun 21Jun 24Jun 27Jun 30Jul 03Jul 06Jul 09Jul 12Jul 15Jul 18Jul 21Jul 24Jul 27Jul 30Aug 02Aug 05Aug 08Aug 11Aug 14050100150200Source: Gazprom, GTSOU, Nord Stream AG, Entsog, Energy IntelligenceJun 24 Nord Stream: 68

Staff Reports


In Brief

China Ups Gas Output, Reduces Imports

China’s domestic natural gas production increased in the first seven months of this year, but gas imports decreased at the same time.

China’s output rose 5.4% through July compared to the same period last year, to 126.7 Bcm, the National Bureau of Statistics said this Monday.

The increase continues the trend reported last month.

Expensive international LNG prices pushed China to reduce LNG imports in favor of increased pipeline gas imports and increased production.

China’s gas imports, including pipeline gas imports and LNG, decreased 9.6% in the first seven months of this year to 62.21 million tons, compared to the same period last year.

In July, domestic gas production was 17.1 Bcm, a year-on-year increase of 8.2%, with an average daily output of 550 MMcm.

Dawn Lee, Beijing


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India42.1142.5542.1942.5341.8041.6342.9841.3342.9042.2241.4941.2341.56
Sodegaura, Japan42.8444.1544.1744.2442.8339.6643.8041.8343.6844.5742.1241.3442.98
Zeebrugge, Belgium47.1345.5345.1645.6046.6346.9846.2645.1646.1345.1746.7545.8646.84
Huelva, Spain54.7253.0852.6953.1654.1853.9853.8252.6253.7052.7154.2453.2354.25
Isle of Grain, UK44.3742.7942.4342.8643.9144.2143.6242.4343.3842.4444.0043.1244.09
Everett, US6.765.545.835.586.526.420.016.165.995.276.92----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0045.32-0.4645.32
SW Europe0.0055.401.5355.40
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.048.738.777.59
NBP, UK (futures)+3.2550.9847.7342.82
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF4.9165.9561.0457.26
Zeebrugge (Belgium)--39.57--29.68
German NCG5.9565.0059.0555.45
NBP (UK)1.8145.2243.4133.76
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.178.568.737.78
Corpus Christi, Texas-0.058.298.347.41
Cove Point, Maryland7.617.610.007.63
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.048.738.777.59
Second Mth-0.038.718.747.58
Third Mth-0.038.798.827.65
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22020406080Energy Intelligence
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22020406080Energy Intelligence