LNG demand

Russian flows: Increasingly difficult to predict, but also less necessary

Source: BloombergNEF. Note: BNEF’s Europe Perimeter is Northwest Europe, Austria and Italy.

Source: BloombergNEF

Methodology: Russian pipeline gas flows are becoming increasingly difficult to predict, especially since President Putin’s decree that buyers of Russian gas should pay in rubles.
- Given the uncertainty over Russian flows, BNEF assumed a Russian flow profile until April 2023 before setting these Russian flows as a variable to be solved in our modelling. Hence, the Russian flow base case is a scenario which estimates the reliance of the European market on Russian gas. The analysis helps to ascertain if Europe might be able to halt these flows by a certain date, or by how much gas Europe would be short at current price levels and if flows were to be cut before that date.

In order to do this, the resulting storage withdrawal profile had to be assumed to leave Russian flows to the BNEF Perimeter as the balance item to solve. For the storage profile shape, the seasonal monthly average net storage movements from October 2016 through September 2021 was taken. This was then used to solve for a Russian flow series that works with the remainder of the balance forecast to form a stable and repeating storage profile in which storage is at near maximum levels going into winter.

The Russian three-pipe flow shown in the chart above is calculated to leave storage in BNEF’s Perimeter approximately 84% full at the end of December for a given year, assuming 90% full storage at the start of November based on the EU’s target.

Russian three-pipe flows needed for western Europe fall to 13.8Bcm by 2026, which is below the 20Bcm of net exports to countries such as the Czech Republic and Slovakia needed from the BNEF Perimeter. Despite BNEF’s demand-side view being higher than REPowerEU, BNEF’s current forecasts suggest that Europe could do without Russian gas by perhaps as early as 2026.

China: Pipeline imports growth to outpace domestic gas output and LNG imports

Source: National Bureau of Statistics, China Customs, BloombergNEF.

Pipeline import growth is set to outpace other sources over 2022-26, rising at 9.8% per year. The Power of Siberia pipeline is expected to reach its full capacity of 38Bcm a year in 2025, from 10Bcm in 2021. Central Asia shows more uncertainties. Uzbekistan could completely stop exporting gas to meet domestic demand, cutting around 5Bcm. Meanwhile, Kazakhstan may increase exports to 10Bcm by 2023, from 6Bcm last year, per the contract signed in 2018. However, deliveries could decline afterwards to prioritize domestic needs. In May, the Chinese government urged faster construction of the Central Asia-China Line D pipeline, which could add 30Bcm of capacity at the end of the five-year period.

China’s LNG imports could rise above 100 million tons in 2026, with a compound annual growth rate of 5% over the next five years.

Growth is expected to slow down significantly compared to previous years amid high import prices and tight LNG supply given the Russia-Ukraine war uncertainties. LNG imports in 2022 are forecast to fall 6% from last year, down to 74 million tons. Growth is projected to gradually pick up in later years as spot prices fall and new contracts start.

Domestic gas production will continue to account for most of the gas supply in China. However, its share in the mix is likely to decline from 57% in 2022 to 52% in 2026, indicating the country’s growing dependency on imports. Domestic gas output is forecast to grow at 4.5% per year over the coming five years to reach 256Bcm in 2026. Increasing difficulty in ramping up production, both for conventional and unconventional gas, could slow down output growth.

LNG: Spain, Turkey and smaller European markets to pull supply away from Northwest Europe

Source: BloombergNEF, AHOY JOURNEY , Note: ‘Other Europe’ is Cyprus, Finland, Gibraltar, Greece, Lithuania, Malta, Norway, Poland, Portugal, Sweden and Croatia.

Source: BloombergNEF, Projects of Common Interest (PCI). Note: ‘FSRU’ refers to floating storage and regasification unit.

Competition for LNG will not only come from Asia and South America; demand from emerging European markets such as Greece and surrounding countries such as Turkey will also pull volumes away from BNEF’s modeled LNG Perimeter.
Spain’s demand for LNG is expected to remain robust, averaging just above 16.5 million tons between 2023-25, with the Iberian Peninsula offering ample regasification capacity for offtakers. There is upside to this forecast if a Spain-to-Italy gas interconnector is built, as Italian shippers could use Spain’s higher import capacity to access LNG and import the required volumes. This was not taken into consideration for BNEF’s forecast, however, as this is only at the pre-feasibility phase.

Other European countries like Greece, Poland, Croatia and Lithuania are forecast to see a strong rise in LNG consumption, as many will have to rely on seaborn deliveries to either replace Russian gas or to deliver regasified LNG to neighboring markets that imported large volumes of Russian gas. such as Bulgaria. This is also reflected in the amount of import capacity being built, especially in Greece, Turkey and Poland.

LNG supply for other European markets is expected to top 18 million tons by 2026 and delivered LNG could near 12 million tons into Turkey by 2024. LNG imported into BNEF’s Perimeter will also likely be redistributed east during times of high supply.

China’s regasification capacity is expected to skyrocket to 176 million tons per year. More Chinese players are likely to join the international LNG market as more terminals owned by non-NOCs (national oil companies) come online.

BNEF expects more LNG contract signings in the coming years, whereas spot purchases could slow down. Spot LNG imports are likely to account for 7-15% of total LNG imports until 2024, compared to 30% in 2021.

Source: BloombergNEF. Note: Terminal capacity is existing and under construction.

Emerging Asia: Suffering from unaffordable LNG supply

Source: BloombergNEF, BP Statistical Review of World Energy 2021

Source: BloombergNEF

BNEF has revised down its 2025 LNG demand projection for South and Southeast Asia by 29 million tons, compared to the five-year outlook published in June 2021. Higher LNG prices are one of the key reasons for the lower demand projections.

Pakistan, Bangladesh and Thailand have a much higher share of gas in their primary energy mix than other markets in the region. All three nations built their energy systems on cheap domestic gas. Falling domestic production makes LNG imports critical for these countries, but expensive spot LNG purchases will be difficult for these price-sensitives buyers over 2022-26.

BNEF forecasts moderate to severe gas shortages could happen in Pakistan, Bangladesh and Thailand over the period given their strong gas dependency and high prices. Thailand is relatively less exposed to pricey spot LNG than Pakistan and Bangladesh, as the latter two have a higher share of LNG in their primary energy mix. The share of spot LNG in Pakistan and Bangladesh was roughly 40% in 2021, whereas Thailand’s spot share was 22% for the same year, based on BNEF analysis.

India’s economy is less exposed to gas given its relatively lower share in the energy mix. However, high LNG prices could delay plans to raise the share of gas in the future energy mix. Investors have piled billions of dollars into the development of gas infrastructure, hoping to cash in on expected gas demand growth in India. LNG imports accounted for more than half of the total gas consumed in India in 2021.

Signing new oil-indexed long-term LNG contracts could possibly help emerging Asian markets support the necessary growth in their LNG needs.