Quarterly Gas Review – Issue 18
The second quarter of 2022 has been a dramatic one for the European gas market. On the supply side, relatively modest increases in European production and pipeline imports from Norway and Azerbaijan have been overshadowed by two significant shifts: the decline in pipeline flows from Russia and the high level of LNG, both of which are continuations of trends seen in Q1. Last year, China’s LNG imports of 107 Bcm were greater than those of all European importers (excluding Turkey) combined (89 bcm). The fact that LNG imports into China have been substantially lower year-on-year in both Q1 and Q2 has enabled a greater volume to flow to Europe. Both of these dynamics are examined in this review.
We begin this edition of our OIES Quarterly Gas Review, as always, with our review of gas prices, and in doing so, we assess the impact of the present market situation on LNG margins, as a motivator for LNG project FIDs, and inter-fuel dynamics in Europe. We then take a deeper dive into the supply-demand balance on the European market in recent months and the key factors in that balance. Finally, we present two special sections: Firstly, ‘In the Bleak Midwinter’ considers the EU proposal to reduce gas consumption during the coming winter and the impact of a complete curtailment of Russian flows to the EU. Secondly, we present the near-term outlook for China. Given that the extent to which Chinese LNG demand rises or falls has a significant impact on the availability of LNG for Europe, we examine the economic context behind China’s current LNG demand dynamics.