Gas prices are still around 50 euros ($53), more than twice the average of the decade prior to Vladimir Putin’s invasion in Ukraine.
It’s never too early to start planning and imagining a future that is less dire: Instead of a world of scarcity there will be abundant supplies of liquefied gas provided by the US, Qatar and other countries.
To achieve this, the plan must be followed exactly. After two years of crisis, “as planned”, carries a great deal of weight. But, there is hope. For at least the next 18 months, that hope will be just that.
The International Energy Agency stated this week that “starting in 2025, a surge of new LNG projects will tip the balance and ease concerns about the supply of natural gas.” This view is gaining ground in the market. The International Energy Agency said that a wave of new LNG projects will remodel the gas markets. Fatih Birol is the head of the organization and went further to say: “The market will shift in the direction of a buyer’s market.”
LNG export terminals cool the gas to a liquid state before loading it on massive ships. This is different from gas pipelines which connect physical buyers and sellers. Each terminal costs billions of dollars and takes many years to construct. The LNG regasification facility is required at the other end of this chain before the product is shipped to the final consumer via a domestic pipeline.
The LNG market is crucial to the balance of the European gas markets, as buying Russian gas by pipeline is no longer an option. Before the invasion of Ukraine, this gas accounted for over a third the imports of Europe. The pipelines from Norway and Algeria are already full. Anders Opedal of Norway’s Equinor ASA said it best at a recent conference: “Europe will ultimately depend on LNG supply.”
Five years ago, Europe required just over 50 million tons of LNG per year to meet demand. Shell Plc is the largest LNG trader in the world. Europe needs about 100 million tons of LNG now, and 140 million tons by 2030.
The European Union knew that the Russian tanks had entered Ukraine and there was light at end of tunnel. A wave of LNG projects would start pumping in the middle of this decade, changing the balance between supply and demand. Germany also rushed to build a number of LNG regasification facilities in the North Sea, and Baltic Sea, to accommodate the surge in LNG imported. In the winters of 2021-22 and 2022-2023, however, the market was in survival, and the fight for LNG cargos took precedence. There was little time to consider a world with abundance, which seemed far off. The policymakers also knew that many projects are delayed and go over budget. In some cases there was also no guarantee that they would get built.
The light is closer today, and it’s also more certain. Projects are moving forward. Around 250 billion cubic metres of new LNG would be available on the market by 2025. This is a huge number. It’s equal to 45% of the current global LNG production.
In recent weeks, European companies signed a series of LNG long-term deals with QatarEnergy. TotalEnergies SE and ENI SpA have signed contracts to purchase 8 million tons per year of LNG. ConocoPhillips, an American energy company, had signed a 2-million-ton per year contract with Germany to supply it from Qatar.
Qatar has achieved a huge sales success. As it expands the largest gas field, Qatar will have about 48 million tonnes of LNG on hand. Qatar has pre-sold 40% of the new volume thanks to European contracts and several deals with China. The success of the sale – and the lengths of the contracts – are testaments to the global appetite for LNG.
But it won’t come cheap. It is likely that LNG prices will remain well above the pre-crisis levels and Europe has at least one or two more winters before it. Don’t throw away your scarves or sweaters just yet.