Released March 23, 2023 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The economists were right when they said the best cure for high prices was high prices. In this case, natural gas prices in Europe and Asia skyrocketed last year following Russia's invasion of Ukraine in February 2022. But a combination of high prices, fuel switching, demand destruction, a warm winter, increased storage and increased imports on liquefied natural gas (LNG) helped bring gas prices down to their pre-invasion levels by the end of 2022. In a new report on global gas markets, the International Energy Agency (IEA) (Paris, France) predicted gas prices will continue falling throughout most of 2023, to well below the pre-invasion prices.
Click on the image at right to see natural gas prices in three critical markets: Europe (TTF), Asia (JKM) and the U.S. (Henry Hub).
Rising gas production by the U.S., coupled with expanded LNG export facilities, helped ease Europe's gas pains. U.S. annual gas production rose from 968 billion cubic meters (Bcm), or about 34.2 trillion cubic feet (Tcf) in 2019 to 1,021 Bcm, or approximately 36 Tcf in 2022, according to the IEA's Gas Market Report Q1-2023 report, released February 28. The agency projects a further gain, to 1,041 Bcm, or 36.8 Tcf, for 2023.
U.S. gas production rose about 3.8% in 2022, the IEA said, driven by associated gas production in the Permian and other oil-heavy unconventional formations. Although drilling activity in the nation's largest gas-prone formation, the Appalachian Basin, increased, gas output from that formation declined about 4.8% during 2022. Within the Appalachian Basin, output from the Marcellus Shale was stable but the Utica Shale's production dropped 21% in 2022, the IEA said.
Click on the image at right to see overall U.S. gas production trends, and trends for the Appalachian and Permian basins.
The IEA report predicted a more muted gain in U.S. gas production this year, about 2% over 2022 levels, citing "several years of low investment driven by strict financial guidance from oil and gas companies. Higher returns in 2022 do not seem to herald any major change in spending targets while companies keep a strong focus on short-term shareholder returns" and debt repayment.
Keisuke Sadamori, director of energy markets and security for the IEA, said: "Last year was extraordinary for global gas markets. Prices are returning to manageable levels, particularly in Europe, where a mild winter and demand destruction have helped to cool markets. China is the great unknown in 2023. If global LNG demand returns to pre-crisis levels, that will only intensify competition on global markets and inevitably push prices up again."
By volume, LNG shipments rose 6% in 2022, but high prices doubled the dollar value of those shipments, to a record of approximately $450 billion. In 2023, the report forecast, the volume of global LNG trade is expected to increase about 4.3%. "The expansion of LNG demand is fueled by a continuing rise in European imports to an all-time high of 180 Bcm (thanks in part to new import infrastructure) and by a modest recovery in Asia following the region's demand decline in 2022. LNG export growth continues at around 4.3% thanks to the anticipated return of the 20 Bcm Freeport terminal to full production in Q1 2023."
Click on the image at right to see the dollar-value of the LNG trade, 2017-2022.
The U.S. supplied two-thirds of Europe's incremental demand for LNG last year, though exports from Qatar, Egypt, Norway and other countries also increased to meet demand.
The IEA noted that in 2022, final investment decisions (FID) activity on LNG facilities "was subdued on the liquefaction side, (but) there was a true renaissance of investment in new regasification capacity, with Europe at the center of the upswing. In response to the progressive reduction in Russian pipeline gas supplies, governments and companies within the European Union have announced, revived or accelerated plans for an estimated 130 Bcm of new LNG import capacity since the beginning of 2022, including more than 20 projects based on floating storage regasification units (FSRUs)."
"Of the 130 Bcm, about 20 Bcm of new regasification capacity was completed by the end of 2022 and another 50 Bcm was under development at the start of 2023, with Germany (23 Bcm), Italy (10 Bcm) and Belgium (Bcm) accounting for the highest share of under-construction capacity," the IEA report said. "We estimate that the European Union's effective LNG import capacity (taking into account existing market constraints and infrastructure bottlenecks) will increase by at least 40 Bcm between the end of 2021 and the end of 2023 thanks to the latest wave of investment in new import infrastructure."
Asian demand for LNG is expected to rise in 2023, but the size of the gain critically depends on China's import levels, which the IEA termed "40 Bcm of uncertainty." LNG imports this year are slated to rise for China, India and emerging Asian markets, but declines are expected for Japan and South Korea. Chinese demand for LNG this year could range from a low of slightly under 80 Bcm to a high of nearly 120 Bcm.
Click on the image at right to see China's recent (2019-2022) and 2023 projected LNG demand.
Given the uncertainties of Chinese LNG demand and the ongoing Russian invasion of Ukraine, the IEA concluded by emphasizing the importance of enhancing energy security and price stability by accelerating the clean energy transition, partly through increased production of what it called "low-emission gas," such as biomethane, low-emission hydrogen, synthetic methane and natural gas subject to carbon capture, utilization and storage (CCUS)-based technologies.
"Low-emission gases," the report said, stand "at the intersection of energy supply security and decarbonization efforts: besides contributing to lower-emission pathways, domestically produced low-emission gases enhance market resilience and can significantly reduce reliance on fossil fuel imports."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Rising gas production by the U.S., coupled with expanded LNG export facilities, helped ease Europe's gas pains. U.S. annual gas production rose from 968 billion cubic meters (Bcm), or about 34.2 trillion cubic feet (Tcf) in 2019 to 1,021 Bcm, or approximately 36 Tcf in 2022, according to the IEA's Gas Market Report Q1-2023 report, released February 28. The agency projects a further gain, to 1,041 Bcm, or 36.8 Tcf, for 2023.
U.S. gas production rose about 3.8% in 2022, the IEA said, driven by associated gas production in the Permian and other oil-heavy unconventional formations. Although drilling activity in the nation's largest gas-prone formation, the Appalachian Basin, increased, gas output from that formation declined about 4.8% during 2022. Within the Appalachian Basin, output from the Marcellus Shale was stable but the Utica Shale's production dropped 21% in 2022, the IEA said.
The IEA report predicted a more muted gain in U.S. gas production this year, about 2% over 2022 levels, citing "several years of low investment driven by strict financial guidance from oil and gas companies. Higher returns in 2022 do not seem to herald any major change in spending targets while companies keep a strong focus on short-term shareholder returns" and debt repayment.
Keisuke Sadamori, director of energy markets and security for the IEA, said: "Last year was extraordinary for global gas markets. Prices are returning to manageable levels, particularly in Europe, where a mild winter and demand destruction have helped to cool markets. China is the great unknown in 2023. If global LNG demand returns to pre-crisis levels, that will only intensify competition on global markets and inevitably push prices up again."
By volume, LNG shipments rose 6% in 2022, but high prices doubled the dollar value of those shipments, to a record of approximately $450 billion. In 2023, the report forecast, the volume of global LNG trade is expected to increase about 4.3%. "The expansion of LNG demand is fueled by a continuing rise in European imports to an all-time high of 180 Bcm (thanks in part to new import infrastructure) and by a modest recovery in Asia following the region's demand decline in 2022. LNG export growth continues at around 4.3% thanks to the anticipated return of the 20 Bcm Freeport terminal to full production in Q1 2023."
The U.S. supplied two-thirds of Europe's incremental demand for LNG last year, though exports from Qatar, Egypt, Norway and other countries also increased to meet demand.
The IEA noted that in 2022, final investment decisions (FID) activity on LNG facilities "was subdued on the liquefaction side, (but) there was a true renaissance of investment in new regasification capacity, with Europe at the center of the upswing. In response to the progressive reduction in Russian pipeline gas supplies, governments and companies within the European Union have announced, revived or accelerated plans for an estimated 130 Bcm of new LNG import capacity since the beginning of 2022, including more than 20 projects based on floating storage regasification units (FSRUs)."
"Of the 130 Bcm, about 20 Bcm of new regasification capacity was completed by the end of 2022 and another 50 Bcm was under development at the start of 2023, with Germany (23 Bcm), Italy (10 Bcm) and Belgium (Bcm) accounting for the highest share of under-construction capacity," the IEA report said. "We estimate that the European Union's effective LNG import capacity (taking into account existing market constraints and infrastructure bottlenecks) will increase by at least 40 Bcm between the end of 2021 and the end of 2023 thanks to the latest wave of investment in new import infrastructure."
Asian demand for LNG is expected to rise in 2023, but the size of the gain critically depends on China's import levels, which the IEA termed "40 Bcm of uncertainty." LNG imports this year are slated to rise for China, India and emerging Asian markets, but declines are expected for Japan and South Korea. Chinese demand for LNG this year could range from a low of slightly under 80 Bcm to a high of nearly 120 Bcm.
Given the uncertainties of Chinese LNG demand and the ongoing Russian invasion of Ukraine, the IEA concluded by emphasizing the importance of enhancing energy security and price stability by accelerating the clean energy transition, partly through increased production of what it called "low-emission gas," such as biomethane, low-emission hydrogen, synthetic methane and natural gas subject to carbon capture, utilization and storage (CCUS)-based technologies.
"Low-emission gases," the report said, stand "at the intersection of energy supply security and decarbonization efforts: besides contributing to lower-emission pathways, domestically produced low-emission gases enhance market resilience and can significantly reduce reliance on fossil fuel imports."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
