Source: energate

energate: Mr Schröder, Europe has increasingly been stocking up on LNG as a result of the gas crisis and the loss of Russian pipeline gas. What impact did this have on the global LNG market?

Schröder: Europe drove up world market prices in the LNG buying frenzy in 2022. A shift of LNG volumes towards Europe was made possible by savings in other parts of the world. China imported 21 per cent less in 2022 than in the previous year. Brazil, India, Japan and Pakistan also cut back sharply. It is questionable how long-term the restraint of the price-sensitive emerging markets is. As soon as prices drop a little, they will import more again.

energate: Will the situation ease with an expansion of LNG capacities in Europe?

Schröder: Globally, the LNG market will remain tight in 2023. On the supply side, we expect hardly any new supply, with the exception of smaller plants (Mozambique since December 2022, Senegal, Indonesia). Only by holding back demand will the global LNG market come into balance. At the beginning of the year, it is apparent that the covid situation in China would remain tight and the country is importing little LNG for the time being. In other price-sensitive parts of the world, LNG imports also remain low as long as world prices remain high. Europe, with its purchasing power, will continue to import a lot of LNG in 2023 as Russian gas fails to materialise. The new European liquefied natural gas capacities can alleviate supply bottlenecks. They contribute to supply security in Europe. But they also mean additional import opportunities for Europe and thus a further shortage on the world market.

energate: How will the relationship between Europe and Asia develop as the most important consumer regions for LNG?

Schröder: Asian countries will not stand idly by while Europe buys the LNG market dry. They will secure their foreseeable growth in demand through long-term contracts with stable prices. The large LNG contract between Qatar and China is an example of this. But there are also medium-term adjustment reactions. Countries like Korea and Japan are reactivating their nuclear and coal-fired power plants to save gas. India is also burning more coal than planned.

Due to competition for LNG imports, gas prices in the spot markets in Europe and Asia are strongly correlated. We expect this to continue in 2023. Traditionally, the Asian price is slightly higher than the European price. In 2022, this picture has reversed and in 2023 we are looking eagerly at the relationship between the two price regions.

energate: Some of the LNG imported into Europe also came from Russia. How does that come about, when we actually want to get away from Russian energy imports?

Schröder: The amount of Russian LNG in Europe increased by 2.2 million tonnes to 14.5 million tonnes compared to the previous year. The share of all imports in Europe is about 13 per cent. I would not overestimate this and we should not speak of dependence here. But it is astonishing that Europe is transferring significantly more money for Russian LNG in 2023 than before the war. The Russian state is responding to this extra revenue by raising the LNG export tax in the short term. Unlike the UK, the EU has not introduced a general gas embargo against Russia.

energate: So far, Germany has had to procure its LNG mainly on an 'ad-hoc' basis. What does that mean?

Schröder: Ad-hoc procurement of gas is not bad to begin with. The only consequence is that one is exposed to global price fluctuations. To hedge against this, German companies are currently seeking long-term contracts with more stable conditions. They are in negotiation mode. US trading partners are the first choice, as are African producers. The recent trips of politicians and business delegations to the Emirates and Qatar serve to prepare contracts from the Middle East. However, there is little agreement so far on sticking points such as price, duration and flexibility of the contracts. The LNG market is so tight at the moment that contracting is running in favour of sellers. It may be worth waiting for a more favourable negotiating momentum before concluding a contract.

The questions were asked by Mareike Teuffer.

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