The rebalancing of the European market remains the key to the global gas market



The latest "China Natural Gas Development Report (2023)" released on the official website of the National Energy Administration shows that in the first half of this year, the international natural gas market was affected by factors such as warm temperatures in the heating season, high underground gas storage inventories in Europe and the United States, and slowing global economic growth, and the tension between supply and demand was significantly eased, and the marginal effect of geopolitical influence such as the Ukraine crisis on the international energy market was weakened. The current international natural gas spot and mid - and long-term futures prices have recovered to the level before the Ukraine crisis. In the second half of the year, the rebalancing of the European market is still the key to affecting the trend of the global market, and it is expected that the replenishment process of imported liquefied natural gas (LNG) is relatively moderate, and the demand of the Asian market is steadily recovering.

The report predicts that under the current overall balance of global natural gas supply and demand, the demand for replenishment of gas storage in Europe and the United States is generally guaranteed, and under the premise of no global extremely cold weather, it is expected that the current and next heating season natural gas market is generally stable. On the domestic front, affected by the economic situation and the trend of natural gas prices at home and abroad, demand will continue to pick up, but volatility has increased. It is initially estimated that the national natural gas consumption in 2023 will be 385 billion to 390 billion cubic meters, an increase of 5.5% to 7%, and the growth will be mainly driven by urban gas and power generation gas.

Among them, the increase of urban gas mainly comes from commercial service industry, transportation and heating gas; The increase of gas consumption for power generation mainly comes from the increase of gas installed capacity and the influence of the demand for power generation at the summer peak of kurtosis. Industrial users are more sensitive to gas prices, and demand growth is greatly affected by gas price trends in the second half of the year.

In 2022, the world's natural gas consumption will be 3.94 trillion cubic meters, with the year-on-year growth rate dropping from 5.3% in the previous year to -3.1%. Europe was the region with the largest decline in global consumption, with annual gas consumption of 498.8 billion cubic meters, down 13.0% year-on-year.

Affected by Western sanctions on Russia, European imports of Russian pipeline gas have been sharply reduced since last year. According to the "report" statistics, the global pipeline gas trade volume last year 649.2 billion cubic meters, down 7.8%, accounting for 53.7% of the total natural gas trade, a decrease of 4.0 percentage points compared with the previous year, mainly due to Russia's pipeline gas supply to Europe has declined significantly. LNG trade volume 559.7 billion cubic meters, an increase of 5.1%, of which the United States LNG export trade volume of 110 billion cubic meters, an increase of 13.4%.

At the same time that the volume of pipeline gas trade between Russia and Europe has declined sharply, the United States and the Middle East have increased LNG supplies to Europe. In 2022, Russian pipeline gas exports to Europe fell by 50% year-on-year, while LNG exports from the United States and Qatar to Europe increased by 142% and 22.6% respectively.

The rush in Europe last year to store gas for the winter also pushed up the rental of floating LNG carriers. In 2022, the world has put into production LNG terminal unloading capacity of 1.01 billion tons/year, an increase of 37 million tons/year, the new production projects are mainly floating storage regasification unit (FSRU), mainly distributed in Germany, Finland, the Netherlands and other European regions.

Last year, the domestic natural gas market experienced a rare decline in natural gas consumption. According to the report, in 2022, the national natural gas consumption will be 364.6 billion cubic meters, down 1.2% year-on-year; Natural gas accounted for 8.4% of the total primary energy consumption, down 0.5 percentage points from the previous year; China's natural gas output was 220.1 billion cubic meters, up by 6.0 percent year-on-year; China imported 150.3 billion cubic meters of natural gas, down 9.9% year on year. Under the background of tight global natural gas supply and high LNG spot prices, China has flexibly adjusted LNG imports, and LNG imports last year were 87.6 billion cubic meters, down 19.5 percent year-on-year.

The International Energy Agency (IEA) recently released a report on the natural gas market believes that the natural gas market in the first half of 2023 is gradually rebalancing, but due to macroeconomic and geopolitical impacts, there is still a risk of supply shortages in the winter of 2023-2024.

The IEA estimates that a cold winter could boost gas demand in the EU's residential and commercial sectors by 30 billion cubic meters compared with the 2022-23 heating season. Given the geopolitical uncertainty, a further reduction in pipeline gas from Russia to the EU cannot be ruled out. If Russia's gas supply is completely stopped from October 1, 2023, it will result in a shortage of 10 billion cubic meters of gas. The IEA's simulations suggest that a cold winter, combined with a complete halt in Russian pipeline gas supplies to the EU from October 1, could reignite market tensions.