World gas supply turns from shortage to surplus with reduced demand

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(Bloomberg) — The world is becoming awash with natural gas, pushing prices lower and creating an overabundance of the fuel in both Europe and Asia — at least for the next few weeks. 

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This trend has rarely happened in the past year since the war in Ukraine upset energy markets and Europe rushed to find as many alternative sources of supply as possible.

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Now, inventories are filling up from South Korea to Spain, due to mild winter weather and efforts to reduce consumption. Vessels carrying liquefied natural gas – a temporary solution to replacing Russia’s lost pipeline flows – now often struggle to find a home, spending weeks idle at sea.

Demand for gas typically declines when the heating season ends, before hotter weather increases cooling demand in late summer. The fuel is then mostly put into storage locations in preparation for the next season, Morgan Stanley said, but this year, refueling efforts in Europe could be completed as early as the end of the season, Morgan Stanley said. August.

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“There appears to be a near-term gas glut that will maintain pressure on LNG prices over the next few weeks, potentially pushing up standards,” said Talon Custer, an energy analyst with Bloomberg Intelligence. a little lower.”

Although gasoline prices in Europe and Asia have fallen sharply from last year’s highs, they are still well above the ten-year average, signaling concern that the current glut may disappear. Custer said prices “could be close to the floor” as cheaper gas costs could boost additional demand.

All eyes are on summer weather, as any extreme heatwave and drought could boost consumption. Mr. Custer said that at the beginning of the third quarter, importers will begin to prepare for winter, increasing competition for LNG shipments.

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But now, the oversupply is spreading.

From Spain to China

In Spain, which has the most LNG terminals in Europe, gas storage is 85% full, meaning the country’s market can quickly turn into a glut and put pressure on delivery prices. immediately, RBC Capital Markets said.

In Finland, LNG import positions for the summer period have been reduced from 14 to 10, partly due to the expected drop in demand. Europe has quickly installed mobile LNG import terminals as it cuts its dependence on Russian gas pipelines, and more terminals will be added this year and next.

Meanwhile, global LNG exports rebounded in March to an all-time high in part thanks to a rebound in US production. The extra supply is contributing to the price drop as merchants struggle to find where to ship.

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UK gas exports to the continent are on the rise as the country lacks large storage facilities and LNG continues to flow at a record rate this time of year. Additionally, China sees record LNG re-exports amid a slow recovery after pandemic restrictions were lifted and some ships are diverting from another major LNG importer, South Korea. . Japan, a major buyer, is also offering to sell shipments to prevent oversupply in the country.

In South America, demand remained weak until Argentina launched its second floating import port in May, in time for colder weather in the Southern Hemisphere, said Leo Kabouche, analyst at Energy Aspects Ltd.

However, planned annual maintenance at gas facilities from the end of April through the end of summer could limit excess supply. Other risks remain, from further cuts to Russian deliveries or unexpected outages. Global LNG supplies are largely expected to remain limited for another two years.

That is reflected in futures prices, which are forecast to be higher in the coming months and especially into the winter, and will remain high through early 2025.

“In 2023, Europe’s gas balance is much more fragile” than it was last year, the French Institute of International Relations said in a report last week. “Any small disruption in supply can have a big impact.”

—With the support of Elena Mazneva and Francois de Beaupuy.