Global gas markets are in upheaval

Obstructed globalization

Compared to coal and oil, natural gas is a relatively new fuel, a mixture of hydrocarbon and non-hydrocarbon gases trapped in the formation and previously used as an associated product of oil and coal. With the increasing demand for natural gas and the continuous expansion of related development processes and uses, natural gas has gradually become an independent energy product and an important industrial raw material.

Due to the characteristics of low carbon emissions and high calorific value at the same time, in the process of promoting energy transformation and reducing carbon emissions in the world's major economies, natural gas has become an important transition energy from the era of fossil energy to the era of renewable energy, and occupies an increasingly important proportion in the energy structure of the world's major economies.

At present, the world's main natural gas producing regions are North America, Central Asia-Russia, the Middle East and the Asia-Pacific region, which are also the main natural gas consumption regions. However, due to the imbalance of natural gas production and consumption, Western Europe and Northeast Asia have become the main natural gas import regions, and the United States, Central Asia, Australia, Qatar and other places have become the main natural gas export regions.

North America, the Middle East, Russia-Central Asia, and the Asia-Pacific region are the world's major natural gas producers. Image credit: BP

Due to the high dependence on pipeline transportation, natural gas in the initial stage of emergence showed a clear regional, focusing on the supply of countries and regions near the origin. The technology of LNG, the manufacture of LNG carriers and the reduction of transportation costs have made the global trade of natural gas gradually prosperous, and the natural gas market has gradually changed from regionalization to globalization, and the market trend and price transmission between regions are strengthening.

Trends of major global natural gas trade in 2021. Image credit: BP

Natural gas prices and trade are influenced not only by actual supply and demand, but also by inter-governmental negotiations, infrastructure construction, financial policies, and international oil prices. Like other energy products, natural gas has strong political attributes and can be used as a political "weapon".

Since 2021, under the combined action of multiple factors, commodities led by energy products have begun to rise sharply, and an "energy crisis" has swept the world. In the first quarter of this year, the outbreak of the conflict between Russia and Ukraine further amplified the volatility of the energy market, and the European Union and the United States officially announced that they would part ways with Russian energy products.

The globalisation of the gas market is about to be cut short here in the EU and Russia.

Brexit

Through long-term and large-scale coal, oil, and gas deals, the EU is already deeply tied to Russia in the energy sector. In previous decades, gas had been an important tool for Russia to beat Europe.

As an important way of Russian gas pipeline to Europe, Ukraine has reduced Russia's gas transmission to Europe several times before, and pulled Europe into the water many times in the "Russian-Ukrainian gas struggle". This series of disputes directly led to Russia began to build a gas pipeline that bypasses Ukraine, and EU countries began to pay more attention to the construction of natural gas storage facilities and LNG terminals.

With the outbreak of the conflict between Russia and Ukraine, the European Union has made up its mind to completely cut ties with Russia, and the first thing they have to get through is this winter.

The bombing of the Nord Stream 1 and 2 pipelines in the Baltic Sea in late September also shook the world. Despite accusations from the European Union, the United States and Russia, and investigations by investigators, the incident remains a Rashomon mystery.

Looking back more than a month later, the symbolism of the event seems to be stronger. With only one of Russia's five main pipelines pumping gas to Europe, the Soyuz pipeline through Ukraine, still operating, the impact of the Nord Stream bombing seems to have been quickly forgotten. Whether the pipeline is sound or not, the EU is determined to wean itself off Russian energy altogether, and it is only a matter of time.

Share of EU gas imports by source (value). Image credit: Eurostat

According to data released by the European Union, in the past five years, despite the increasing proportion of renewable energy, Europe's energy consumption is still 57% to 60% of fossil energy, and the vast majority of them rely on imports. Among them, the proportion of natural gas imports is as high as 90%, of which Russian gas imports in 2021 accounted for 45% of the total imports of the EU, compared with an average of about 40% in the previous years.

In March this year, the European Commission issued an energy independence plan, which plans to accelerate the development of renewable natural gas by diversifying natural gas imports, and reduce the use of natural gas in heating and power generation, so as to reduce dependence on imported natural gas from Russia. Since the second half of the year, Europe has been preparing for the withdrawal of Russian gas, so it has supplemented the purchase of gas storage resources and LNG in advance, and has also been calling on all walks of life to reduce the use of natural gas resources.