Europe relies on LNG, but market tight ahead of coming winter

The outlook for liquefied natural gas for the coming winter is highly uncertain, according to energy company executives. In addition to the war in Ukraine, traders’ decisions are also being influenced by uncertainty over when new gas regasification capacity in Europe will come online and the likelihood of a cold winter in Asia. 

Although the European Union intends to maximise supplies of liquefied natural gas to Europe during the coming winter, the situation may not be so straightforward due to the high level of uncertainty. At least, this is what representatives of energy companies contacted by Reuters have warned.

The invasion of Ukraine has raised concerns about disruptions to Russian gas supplies to Europe, which pushed global gas prices to record highs earlier this year and, above all, sparked concerns about energy security.

The entire LNG sector therefore faces several challenges. In addition to unpredictable weather, it remains unclear whether Russian supplies to Europe will be further curtailed, managers contacted by Reuters said.

It is also uncertain whether Europe will be able to build new liquefied natural gas import infrastructure in time to replace the volumes of natural gas supplied from Russia. The volume of gas Russia supplies to Europe and the size of the liquefied natural gas market must also be taken into account.

"If we convert the volume of Russian pipeline gas to Europe in 2021 into an LNG equivalent and add the volumes of LNG supplied to Europe in 2021, it amounts to 200 million tonnes of LNG equivalent. That is half the size of the current global LNG market," said Steve Hill of Shell.

Questions also remain over the construction of facilities to regasify imported liquefied natural gas. Although a number of countries have announced plans to expand or build new capacity, it is not certain whether it will be ready before the start of this winter.

"It is a race against time. We believe LNG regasification facilities will probably be operational by the end of winter, but likely not by its beginning," said Michael Stoppard of S&P Global Commodity Insights.

As before last winter, competition for LNG supplies between Europe and Asia could also play a role, as traders outbid one another and drove prices higher.

Unlike last winter, however, buyers are likely to enter this winter better prepared than they were last year. New European legislation requiring storage facilities to be filled to at least 80 % of their capacity before winter should also help.