2023 could be an uncomfortable gas year for Europe

Paris (energate) - The International Energy Agency (IEA) warned of a fragile balance in the gas market this year. In the current gas report for the first quarter of 2023, the IEA analysts point to a number of risks. The agency has repeatedly warned in recent months that the remaining gas flows from Russia to Europe could come to a standstill due to further developments in the Ukraine war. Gas is still flowing to Europe through Ukraine and via the Turk Stream pipeline through the Black Sea and then the Turkish-Bulgarian border crossing point Strandzha.

The second risk is Chinese LNG demand, which the IEA calls "the great unknown" in its report. In 2022, Chinese demand had plummeted by 22 per cent, around 82 bcm, an unprecedented event. According to their updated forecast, IEA analysts expect demand to rise to 94 bcm in 2023. But the uncertainty following the end of the zero-covid policy is high. The corridor of possible demand is between 75 and 115 bcm. The good news from the IEA's point of view. China has LNG purchase contracts with a volume of 110 bcm and will therefore probably not become active on the spot market.
 

Uncertain demand development

The third risk from the IEA's point of view is the development of demand in Europe. For 2023, demand in 'OECD Europe', i.e. the countries that are members of the OECD, is expected to fall by 3 per cent compared to 2022. This is solely due to an expected lower demand for gas in power generation. Thanks to a significantly growing supply of electricity from renewable energies and a higher availability of French nuclear power, almost 15 per cent less gas will be needed for electricity generation.

In the industrial sector, the IEA expects demand to be almost 10 per cent higher. At normal temperatures, demand in the household and commercial sector will grow by 3 per cent. With a tighter LNG supply and a complete loss of Russian gas flows, an overall drop in demand of 8, not 3, per cent will be needed to keep the market in balance.
 

USA expands production

In 2023, last year's trend in global LNG trade will continue. High demand in Europe and high supply from the US are the two determining factors. US natural gas production will continue to grow in 2023, but at a weaker pace than last year. US export capacity will increase primarily due to the re-availability of the Freeport liquefaction terminal. The terminal, with an annual capacity of 20 billion cubic metres, is out of operation after an explosion in June last year, but will be restarted in the coming weeks.
 

Investment in new export facilities disappoints

The IEA is rather disappointed in the report about the low level of investment in new liquefaction capacity. Investment decisions were only made for two large terminals in the USA and a small floating export terminal in Malaysia. The total capacity of the three projects is 34 bcm. The reluctance of potential customers to sign new contracts is one reason for the hesitant development. /hl