2023, dark year. Gas and LNG, huge supply problems ahead.

It’s a Bloomberg article that you have to keep in mind to understand what’s going on and predict what’s going to happen.

World LNG reserves are “exhausted” for years, warns the main Japanese importer and no long-term contract is available before 2026, according to Japan.

Clearly, there is no LNG available before… 2026. By then everything has already been sold! (and purchased, and transport booked).

This situation will intensify global competition for LNG.

Japan warns that global competition for liquefied natural gas will intensify over the next three years due to underinvestment in supply.

Long-term LNG contracts that start before 2026 are running out, according to a Commerce Ministry survey of Japanese companies released on Monday. These types of contracts are essential for buyers, as they provide stable prices and a reliable supply for many years.

Countries around the world are scrambling to secure deliveries of power plants and heating fuel from major exporters like Qatar and the United States, but there are few new supplies online before 2026. Meanwhile , Europe is rushing to replace Russian gas with LNG, further exacerbating the global shortage of this fuel.

This means that importers will be forced to rely more on the volatile and expensive spot market, which currently trades almost three times as much as long-term contracts. According to the International Group of Liquefied Natural Gas Importers, around 30% of all LNG deliveries were made on the spot market last year.

Japanese ministry officials and energy company executives met on the same day to discuss LNG supply plans. Japan is on track to become the world’s largest importer of LNG this year, and the fuel is the country’s first choice for power generation.

Lack of investment in LNG export projects means supply will be very tight for years to come, according to the Commerce Department document. If Russian pipeline gas to Europe is completely cut off, the world could face a shortage of 7.6 million tonnes of LNG in January 2025, equivalent to a month’s worth of imports for Japan, according to the document.

Japan has taken steps to bolster its energy security by allowing the government to purchase LNG on the spot market in case companies are unable to do so.

To summarize ?

LNG exists in limited quantities.

1/ No one wants to sell their LNG forward (at prices set for several years from now).

2/ Everyone sells spot, that is to say to take away as it looks like at McDonald’s and for immediate consumption with obviously rising prices.

3/ When everyone wants LNG at the same time and the quantity remains generally fixed, then the adjustment is made by prices which explode upwards.

4/ LNG will not be sufficient to replace all Russian gas in Europe.

The year 2023 and the winter of 2023 are likely to be even more complicated because we could well approach the next winter with empty reserves if there is not a peace process with Russia which begins very quickly.

Charles SANNAT

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Source Bloomberg.com here

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