Key energy market headed for crunch this winter – experts

The liquefied natural gas (LNG) market could be hit with a potentially historic shortage this winter as the world rushes to secure the super-chilled fuel, Bloomberg reported this week, citing experts.

According to the sources, the EU’s plan to cut imports of piped Russian gas by two-thirds by the end of this year and replace it with LNG from the US and Africa is sharply intensifying competition for the power-plant and heating fuel.

In a normal year, LNG importers stock up on supplies for the peak winter season over the summer. They started replenishing stockpiles earlier this year, people with knowledge of the matter said, noting that the looming supply crunch risks driving up electricity bills and inflation.

“This coming winter has everyone on edge,” James Whistler, the global head of energy derivatives at Simpson Spence Young, told the media outlet. “All things point to tight supply under normal conditions, but additional risks are also present,” he added.

Rystad Energy estimated this month that global demand will hit 436 million tons in 2022, outpacing 410 million tons of available supply.

Meanwhile, traders are diverting LNG shipments away from Asia, and choosing to sell to Europe instead, where prices are more attractive.

“There’s no surplus capacity across the global gas complex, leaving Europe and Asia in a tug-of-war for available supply,” said Michael Stoppard, global gas strategy lead and special advisor at S&P Global Commodity Insights.

Gas prices in Europe have eased from a peak in early March, but are still well above average levels for this time of year. The declines may give the region’s buyers more scope to replenish stockpiles in the next few months, experts say, noting that a lot will depend on how quickly Chinese demand comes back.

Consumption in Asia’s biggest economy, which is still battling the Covid pandemic, still remains subdued, but analysts expect a sharp upsurge in buying later in the year.

“Strong LNG demand in Europe is certain but the wildcard is China, where current demand remains weak given ongoing Covid-19 lockdowns and slowing economic growth,” said Valery Chow, the Asia-Pacific head of gas and LNG research at Wood Mackenzie. “The market will tighten going into winter as European and North Asian buyers compete for volumes,” he said.

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