Global natural gas industry development status and trend analysis

Europe is the world's largest natural gas importer, and its domestic gas production has continued to decline in recent years (around 219 billion cubic meters of production and 541 billion cubic meters of consumption in 2020). European gas production fell 10 per cent in the first half of the year. On the one hand, several gas fields in the North Sea are running out, as are some in the Netherlands. Groningen gas field in the Netherlands, an important gas field in Europe, will stop regular production in 2022 due to frequent earthquakes, which is estimated to affect about 5% of the total gas supply in Europe. On the other hand, in the context of carbon neutrality, European oil and gas companies have reduced their investment in upstream operations. Companies such as BP, Shell and Total have set targets to reduce the carbon intensity of their upstream operations and committed to becoming net zero emissions companies by 2050 or earlier, while overall investment and output by European oil and gas companies are declining, and overall regional self-sufficiency rates are falling sharply.

From the perspective of regional inventories, after the outbreak of the epidemic last year, many natural gas producing countries cut production capacity, and the extremely cold weather at the beginning of this year consumed a large amount of natural gas storage reserves, resulting in natural gas inventories in the United States, Russia, Europe and other places lower than the average level of previous years, and the relatively high gas prices since the beginning of this summer narrowed the summer and winter price gap, weakening the summer gas storage power. Further aggravate the tight market supply situation. In the U.S., natural gas inventories for the week ended Oct. 29 were 3,611 billion cubic feet, 313 billion cubic feet, or 8%, lower than a year ago. That's 101 billion cubic feet, or 2.7 percent, below the five-year average. In Europe, during the gas injection cycle this year, the inventory injection in the European region was only 77%, significantly lower than the 95% in the same period last year, which is the lowest level in more than a decade. In Russia, as the largest supplier of natural gas imports to Europe, the current inventory level of Russian Natural gas company (Russian gas) is also far lower than the same period in previous years, only to meet Russia's domestic winter needs, Russian gas in nearly 2 months a day to Russia's underground storage is equivalent to 80% of its daily exports to Western Europe. The persistently low natural gas inventories in these countries and regions have increased market sensitivity and deepened concerns about winter supply shortages.

2. Strong global demand for natural gas

In 2020, the world's natural gas consumption is 3.82 trillion cubic meters, down 2.3% year on year, and the consumption of major economies has increased and decreased, among which the consumption of natural gas in North America and Europe has decreased by 2.6% and 2.5% year on year, respectively, and the consumption growth rate in the Asia-Pacific region has slowed down, and the consumption of natural gas has increased by 0.1% year on year.

Since 2021, in the context of the global economic recovery, industrial production and consumer demand have rebounded strongly, changing the downturn of last year. The International Energy Agency (IEA), in its Global Gas Market Report for the fourth Quarter of 2021 released in October, noted that global gas market demand remained strong in the first three quarters.

From the perspective of demand growth regions, natural gas demand in Europe has recovered growth, and natural gas demand in Asia has continued to grow rapidly. In the first three quarters, European gas consumption increased by nearly 10% year on year; In the first eight months, China's natural gas consumption rose 16 per cent year on year; In the first seven months, consumption in South Korea, Japan and India increased by 17 per cent, 8 per cent and 3 per cent respectively. The IEA expects that for the whole of 2021, gas consumption in Europe will increase by 4.5% year-on-year; Gas consumption in Asia will grow by 7 per cent year on year, with China contributing 73 per cent of the annual increase, emerging economies 16 per cent and South Korea 6 per cent.

From the perspective of demand growth, first of all, global economic activity is gradually recovering, and the economic growth rate in Asia and the Middle East is accelerating, boosting gas demand in the power sector and the industrial sector.

Second, natural gas demand is more sensitive to climate change, and this year, climate factors, especially extreme weather factors, have driven a significant increase in natural gas demand. The frequent occurrence of extreme weather is gradually changing from accidental factors to long-term factors, affecting the supply and demand pattern of natural gas market.

The extremely cold weather at the beginning of the year and unusually high temperatures in the summer increased residential heating and cooling demand, driving up demand for natural gas power generation.