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Europe imported nearly one-quarter of all LNG traded last year, becoming the premium market for liquefied natural gas as it seeks to replace Russian pipeline gas supply.
This year, Europe needs to import even larger volumes of LNG—in the absence of much of the Russian gas—to refill gas storage sites after this winter ends. Analysts and industry executives concur that the 2022/2023 winter gas demand is more or less secured, thanks to a mild start to 2023 and subdued demand in Asia, the previous premium market for LNG. But they also warn that next winter could be much worse for Europe if Asian—especially Chinese—demand rebounds and intensifies the competition between the European and Asian markets for drawing more LNG supply.
Last year, Europe won that competition, as European benchmark prices surged after Russia started cutting off pipeline supplies to most of its customers to the west. The question for 2023 and beyond is whether Europe will continue to beat Asia for LNG supply once Asian demand starts to recover.
In 2022, the EU’s imports of LNG hit 101 million tons, which was a 58% surge compared to 2021, per data from Refinitiv cited by the Financial Times. The EU imported a total of 24% of all LNG traded last year, according to the data.
Europe’s pivot to LNG has created a demand shock to an already tight global LNG market, with additional 50 million tons annually of EU demand, London-based consultancy Timera Energy said in November.
Europe’s role in the LNG market sharply changed from a passive and flexible LNG sink to a direct and aggressive competitor, Timera Energy noted.
Much of the European LNG imports were aided by lackluster demand in Asia, where China saw a rare drop in gas consumption amid a slowdown in economic growth, while most of South and Southeast Asia simply couldn’t afford the skyrocketing spot LNG prices. Buyers have returned to securing term deals, even buyers in Europe that were previously reluctant to lock in supply for the long term in view of the clash between the carbon footprint of LNG and the EU’s climate ambitions.
However, most of the LNG supply to 2025 is ‘locked in’, and although Europe is expanding its LNG import capacity, there will be limited supply until 2025-2026, when large new projects in Qatar and the U.S. come online, according to Timera Energy.
The EU and the UK are expected to raise their combined LNG import capacity by 34%, or by 6.8 billion cubic feet per day (Bcf/d), by 2024 compared with 2021, the U.S. Energy Information Administration (EIA) said in November, citing data from the International Group of Liquefied Natural Gas Importers (GIIGNL) and trade press. Around 1.7 Bcf/d of the new and expanded LNG regasification capacity has been added in the Netherlands, Poland, Finland, Italy, and Germany, the EIA said.
Last week, Germany welcomed the first tanker carrying LNG at the newly opened LNG import terminal at Wilhelmshaven, with the cargo arriving from the Calcasieu Pass export facility in the United States.
Europe could still struggle to meet its gas needs with growing LNG imports, especially if China’s demand rebounds at some point this year.
According to a recent report from the IEA, if Russian gas supply drops to zero and Chinese LNG demand rebounds to 2021 levels, the EU could have a gas supply-demand gap of 27 billion cubic meters in 2023.
With the plunge in Russian pipeline gas deliveries, Europe will need “huge volumes” of LNG in 2023, commodity trader Trafigura said in December.
“While Europe should avoid a blackout this winter by drawing on inventories and cutting demand, it will need to import huge volumes of LNG in 2023 given the massive reduction in flows from Russia,” Trafigura said in its annual report for the year to September 30.
Natural gas prices in Europe will have to remain elevated so that the continent can continue to attract most of the LNG cargoes in competition with the other key demand centers, according to Trafigura. The commodity trader expects Europe to prioritize the security of supply “through next winter and beyond.”
