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Rebounding China LNG demand to deplete EU stocks – WoodMac


18 May 2023 09:46

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18 May 2023 09:46

(Montel) Rebounding LNG demand in China – with imports currently at a five-month high – would not prevent Europe refilling its storage facilities but could see a faster depletion of EU gas stocks this winter, said consultancy Wood Mackenzie.  

LNG imports into China last week hit more than 2.1bcm, the highest since the first week of the year, according to Kpler ship tracking data. 

The rebound in Chinese LNG demand, following its long recovery from the Covid-19 pandemic, would add 7m tonnes (9.5bcm) of demand to the global balance by the end of the year, Massimo Di Odoardo, the consultancy’s vice president of LNG and gas research, told a webinar late on Wednesday. 

That meant “quite a lot of growth over the remaining months of the year”, which would contribute to a faster depletion of gas stocks in Europe, he added.

“We still get to [full] storage level by the end of the summer,” said Di Odoardo, adding they could reach 95% full, but the firm’s projections, assuming a normal winter, foresaw capacity at EU storage facilities “a lot lower than what has been this winter”.

Rising prices
This would also lead to a rise in prices, “compared to the lows we’re seeing at the moment”. 

The winter contract on the benchmark Dutch TTF hub was last seen around EUR 49/MWh, or EUR 18 higher than the front-month contract, which was trading near a two-year low. 

“And obviously if the winter becomes quite cold then that could result in prices spiking,” Di Odoardo said.

Still, China’s long-term LNG contracted supply should allow Europe to refill storage over the next two to three years, he added.

Europe has become reliant on LNG as a substitute amid the curtailment of Russian gas flows due to the fallout from the Ukraine war but is competing for vital supply with Asia. 

Until the end of the decade, Europe would become even more dependent on LNG amid declining Russian, Norwegian and Algerian imports, despite expected lower gas demand, said Di Odoardo. 

“We'll have to continue to compete, just as it is doing now, for marginal cargoes with Asia.”

Limited supply
Therefore, at times of limited global LNG supply, “prices could struggle to find the ceiling and we could see extremely high price at moments of tight markets”. 

However, new production facilities coming online between 2026-29 – with growth projected to double to 35m tonnes per annum from currently – would see prices “inevitably come down”, said the analyst. 

“There’s a real risk of oversupplied markets… possibly to the same level as we saw in 2019,” said Di Odoardo, adding prices could average USD 7/MMbtu (EUR 22/MWh) between 2026-30, rising thereafter to around USD 10/MMbtu as the market tightened again.

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