why a global supply crisis is looming

On April 1, the BP-chartered vessel, which was fueling Asia from Texas, changed course on April 1 after a two-week voyage at sea, according to the agency. bloomberg. The sudden U-turn took place in the middle of the Pacific Ocean, requiring the payment of $1 million in fees … but above all, it allowed the LNG carrier to receive high bonuses for selling its precious cargo far from its original destination, in Europe. : liquefied natural gas (LNG). A product that is in increasing demand globally and is now reserved for the highest bidders.

And for good reason, the fossil fuel market is, to say the least, contested at a time when the Old Continent is trying to get rid of hydrocarbons from Russia, made undesirable by the offensive in Ukraine. Indeed, in order to gradually replace the roughly 150 billion cubic meters of Russian gas they buy each year, Twenty-Seven are switching en masse to LNG, which is delivered by sea from four corners of the world, rather than by pipeline. Moreover, Brussels needs to prepare for the fact that Vladimir Putin himself will cut the valves, reducing the flow of gas in transit through Ukraine and suspending supplies to Poland and Bulgaria.

Russian gas: Putin increases cuts to Europe, Berlin protests this “energy weapon”

The result: already rising global demand for LNG in 2021 is skyrocketing… and supply is not keeping up. What to create” structural imbalance “, – warned the professional association of the industry in early May. And even pave the way for ” major crisis proposals on the globe, energy analyst firm Rystad Energy recently warned.

bubbling market

And yet the race to produce LNG seems to be in full swing, with “ wave of new projects are already on track to increase global supply. More than twenty of them with a total capacity of 180 million tons per year have recently made progress in development. According to the International Group of Liquefied Natural Gas Importers (GIIGNL), imports increased sharply, reaching 372.3 million tons in 2021, up 4.5% from the previous year. Particularly in Asia, driven by economic recovery and the massive use of fossil gas as a less polluting alternative to coal to power power plants.

On the European continent, Germany even set aside a €3 billion package a few weeks ago to acquire floating terminals capable of regasifying LNG on its territory. BUT” first order question “, – insisted at the end of March, the chief economic adviser to Chancellor Olaf Scholz, Jörg Kukies, – while the country does not yet have this type of infrastructure, unlike France or Spain.

Russian gas: why Europe is trapped

Producing countries are busy

This machine is also launched for exporters who are determined to take advantage of these new outlets. Including Qatar: having declared in early February that it cannot independently compensate for the volume of Russian gas supplies, estimated at tens of billions of cubic meters, the small emirate signed agreements with Germany at the end of March. that their respective business entities resume and advance discussions on long-term LNG supplies. “.

In NorwayEnergy giant Equinor recently announced that it will restart its huge LNG plant in Hammerfest at the end of May, which was hit by a devastating fire in September 2020.

First of all, it is in the United States that the sector is in more turmoil than ever, as projects capable of producing more than 40 million tons of LNG per year will be launched this year, according to S&P Global estimates. This is more than double what was expected before the gas price spike last year! In 2021, however, the race has already begun, with exports exceeding pipeline exports for the first time year-on-year.

The US, the world’s leading LNG exporter, competes for the European gas market with the Russians

So to further speed up, the Biden administration allowed two Cheniere LNG liquefaction terminals in Texas at the end of March to increase the number of countries to which Washington can sell the famous fuel previously restricted to those who signed the free trade agreement. agreements. Thanks to this momentum, the gas industry was put into operation, in particular, in early May, the American next decade was announced, the latter signaled that Engie would buy 1.75 million tons of shale gas. per year, from the future Texas Rio Grande terminal from 2026 and for fifteen years.

“In our short-term energy forecast we expect export LNG will continue to lead the growth in U.S. natural gas exports, averaging 12.2 billion cubic feet per day in 2022. If this happens, the US will overtake Australia and Qatar. […] By the end of 2022, when the new Calcasieu Pass LNG export plant comes online, The United States will have more LNG export capacity than any other country in the world.. We expect relatively strong LNG demand in Asia and Europe to support further US LNG exports,” the Federal Energy Information Administration (EIA) said in a note published in late April.

To get rid of Russian gas, Engie is pivoting and switching to US shale gas despite the climate emergency.

Narrow places

But here it is: Like the Rio Grande project, this flight will not be enough to cushion the demand explosion until at least 2024, Rystad Energy says today. Moreover, outside the United States, and this ” locomotive figure, up to an additional 22.3 million tons last year ”, the overall production is progressing very modestly. Thus, while global LNG demand is expected to reach 436 million tonnes in 2022, available supply should not exceed 410 million tonnes, according to the analyst firm. With facilities under construction, capacity will grow by just 2% this year, S&P Global predicts, and by 3% next year. And even by 2026, there will be only about a hundred million tons of additional LNG left on the planet.

The reason is primarily material: transportation of LNG in liquid form and subsequent regasification requires the creation of a powerful infrastructure, the construction of which takes several years. According to S&P, Qatar, for example, until 2027 could not produce much more than it does now.

Even in the United States, liquefaction plant maintenance, especially at Cameron LNG and Freeport LNG, has already caused LNG exports to fall in April. And not in vain, the longer and more intensively these installations work, the more technical problems can multiply.

So many bottlenecks that promise to intensify international competition for this gas, while hydrocarbon prices are already exploding in the markets.

“We are all set for sustained supply shortages, high prices, extreme volatility, bull markets and an exacerbated LNG geopolitics,” said Kaushal Ramesh, chief gas and LNG analyst at Rystad Energy.

Destroying a request

Under these conditions, the European Union intends to take concerted action to facilitate access to it for its member states. Thus, the draft final declaration of the Council provides for a commitment to joint gas purchases between European countries on a voluntary basis. A way to lower the price by giving Twenty-Seven a stronger bargaining position with suppliers who usually sell to the highest bidder.

But in the face of growing competition, such a device may not be enough. While the European Commission is due to present its REPower EU plan to phase out Russian hydrocarbons on Wednesday, all eyes will be on the proposed alternatives. Because a crisis like the one looming in the gas sector could be very ” painful from an economic point of view, leading to the destruction of demand from some industrial players forced to reduce production despite the chain effects, warns Rystad Energy.

There ” thunderstorm an offensive could even, in the extreme scenario of a very cold winter, threaten residential sector “, – warns the Cabinet of Ministers. In other words, to aggravate the fuel poverty of the most modest citizens who are faced with uncontrolled growth of bills.

So many warnings that should push the European executive to implement sobriety measures to act in a controlled manner on energy demand are recommended by several experts in the sector. A return to a form of “waste hunting” that remains politically taboo but may well be necessary if the crisis escalates.

Energy: “hunting for waste”, this unloved topic that has become the subject of public debate after the Russian offensive in Ukraine.