Soaring LNG Carrier Rates Could Spark A Major Supply Squeeze
Spot charter rates for the global liquefied natural gas (LNG) carriers are soaring due to a shortage of vessels. LNG shipping rates have been dramatically impacted by energy supply chain disruption due to the Russian invasion of Ukraine. The LNG shipping sector is booming even more as rates near record highs following the bombing of the Nord Stream pipeline system last week. Bloomberg said Europe is “to replace Russian pipeline flows with liquefied natural gas from suppliers including in the US and Nigeria.” Rejiggering supply chains for the energy-stricken continent means increasing demand for LNG carriers to source gas further away. Shell booked an LNG carrier for $400k per day, likely the most expensive ever for the Atlantic basin. The Indian firm GAIL also secured an LNG shipment for about $360k per day. Bloomberg explains more: Shell Plc booked the Yiannis to load a US cargo at the end of October for delivery to Europe at a rate equivalent to $400,000 per day on a round-trip basis, said traders. The deal is likely the most expensive ever for the Atlantic basin, according to traders and brokers. GAIL India Ltd. also booked the LNG Schneeweisschen to load a cargo in early November from the US at about $360,000 per day, said traders. The company, which recently sold an LNG shipment from its Cove Point export facility, chartered the vessel from a European utility company, they said. Last month, we pointed out that Western Sanctions Against Russia Spark Mayhem In Shipping As New Threat Emerges because Europe’s scramble for LNG carriers to source LNG from abroad was soaking up all the supply of vessels. There are mounting concerns that the limited availability of LNG vessels could cause cargo disruptions.
Only One EU Member Is Still Receiving Russian Natural Gas
With three of the four pipelines delivering Russian natural gas to Europe out of commission, Hungary is now the only EU member state still receiving Russian gas, Forbes Hungary writes. There are four pipelines that could supply Russian natural gas to Europe: Nord Stream 1, with a capacity of 55 billion cubic meters (bcm) per year (deliveries on this one were halted by Russia); Nord Stream 2, with an identical capacity of 55 bcm (this one never became operational after the German government refused to approve it in the wake of Russia’s invasion of Ukraine). Yamal Europe, the longest pipeline (4,107 kilometers) supplies gas from the Yamal Peninsula in Western Siberia, terminating in Germany, and has a capacity of 33 bcm. Deliveries were halted by Russia in May. Turk Stream, delivering gas from Russia under the Black Sea and through the Balkans, has a capacity of 31.5 bcm and is the only pipeline still in operation. It terminates in Hungary, meaning that as of now, Hungary is the only EU member state still receiving Russian natural gas. Due to the huge income Russia has made from soaring gas prices, coupled with a massive reduction in other trade with Europe, Russia has no interest in completely shutting down these pipelines. Although Hungary still receives gas, its price is linked to market prices, thus the country is strongly opposed to any further sanctions against Russia. Earlier this week, Prime Minister Viktor Orbán announced a national consultation over the EU’s Russia sanctions, with the consultation asking citizens whether they support the sanctions or not. The Hungarian government has vocally opposed many of the sanctions imposed on Russia arguing they harm Europeans more than they hurt Russians. Hungarian Prime Viktor Orbán just last week called for an end to Russian sanctions by the end of the year in order to halt inflation, halve food prices, and bring soaring energy costs under control.
IEA: Global gas production growth to be slightly negative in 2022
The IEA anticipates global gas production growth being slightly negative in 2022, as the expected drop in Russian production resulting from lower demand and higher import diversification in Europe offsets increases from other regions. In its 2022 third-quarter Gas Market Report, the International Energy Agency (IEA) anticipates global gas production growth being slightly negative in 2022, as the expected drop in Russian production resulting from lower demand and higher import diversification in Europe offsets increases from other regions. Limited increases are expected in subsequent years, principally from North America and the Middle East. According to IEA data, global natural gas supply increased by an estimated 4.1% globally in 2021, supported by the market recovery but hampered by a series of planned and unplanned outages that limited output in several producing and exporting countries. The resulting market tightening was further exacerbated by a drop in Russian supply to Europe despite available production and transport capacity. Gas production in North America grew by 2.1% in 2021 despite limited spending in the US upstream sector, supported by increasing domestic and export demand. In IEA’s forecast, North America leads medium-term global growth in natural gas supply with about 85 bcm added between 2021 and 2025. The region accounts for about 40% of the net increase in production capacity and over half of global net production growth between 2021 and 2025. The US continues to lead the trend, with average growth of 2% supported by limited domestic and LNG export development and primarily supplied by the Appalachian basin, complemented by contributions from other dry shale gas plays and associated gas from tight oil basins. Canadian production grows at a slower pace and principally towards the end of the forecast period to provide feed gas for the LNG Canada project, while Mexico continues its declining trend. Eurasia’s gas production rebounded by over 10% in 2021, accounting for over half of incremental global gas supply. Strong recovery in domestic demand together with higher exports (primarily towards Asia) supported this strong growth. Gas production is expected to decline by over 12% in 2022 on lower domestic demand and Russia’s rapidly declining pipeline supplies to Europe, IEA said. According to IEA, Russia’s rapidly deteriorating export prospects in Europe are expected to weigh on the region’s production outlook. Gas production is expected to recover by 1% per year between 2022 and 2025, but total output would remain 10% below 2021 levels by the end of the forecast. The Middle East is a major contributor to global gas supply growth, adding nearly 70 bcm of production between 2021 and 2025, which represents a 10% increase on the region’s gas output. This is driven by a handful of large-scale projects currently under development, including various phases of South Pars in Iran, Hawiyah in Saudi Arabia, Barzan in Qatar, and Karish in Israel. Gas production in the Asia Pacific region is set to increase by 4% between 2021 and 2025 and approach 680 bcm by the end of the forecast period. Most of the region’s growth is in China, which could see its domestic production increase by 12% (or 25 bcm) from 2021 levels to reach 230 bcm in 2025. India’s domestic production revival is also expected to continue, boosting output by close to 9 bcm (27%) between 2021 and 2025. Australia’s gas supply stabilizes at around 150 bcmy, while most of the other producers in the region (including Indonesia, Malaysia, Thailand, Viet Nam, Pakistan, and Bangladesh) are set to experience production declines over the forecast horizon. Africa’s production of natural gas reaches over 290 bcm by 2025, increasing at an average of 2.7% per year over the forecast period, less than half its pre-pandemic rate (averaging 6.1% during the 2015 to 2019 period). This results from a combination of limited additional upstream and LNG export capacity due to be commissioned up to 2025, and more modest domestic growth as mature North African markets start to plateau while demand in emerging African markets is hampered by high import prices and limited availability of local resources. Gas production in Central and South America, which experienced 2 years of decline in 2020 and 2021, is expected to partly recover and reach 156 bcm by 2025, above its 2020 level (150 bcm) but still significantly below its 2019 level (167 bcm). This is led by Argentina’s gradual ramp-up of pipeline capacity to debottleneck its Vaca Muerta shale gas deliveries, while Peru sees some increase with the recovery of its LNG export capacity and additional domestic growth. Brazil’s output almost stagnates to 2025. Legacy exporters Bolivia and Trinidad and Tobago see some capacity being developed, but this is not sufficient to return to past production levels, while Venezuela’s production continues its decline. Europe’s gas production declined by 3.5% in 2021, driven by lower output from the Netherlands, Norway, and the UK. Production is expected to recover by almost 3% in 2022 on lower maintenance in Norway and the UK. Overall gas production is set to decline by close to 1.5% per year between 2021 and 2025. Output is expected to remain broadly flat in Norway and Ukraine, while UK and EU output drops by 20% by 2025 compared to 2021 levels. In the Republic of Türkiye, Sakaryia field is set to deliver first gas in 2023 and ramp up during 2024-2025.
Mid-Course Changes In Gas Pricing To Delay Investments: Reliance
The mid-course changes through price caps not just go against pricing and marketing freedom contracts and government policy promises to companies but also add to uncertainty to a fiscal regime which would impact investments, according to sources briefed on the matter and the presentation. Billionaire Mukesh Ambani’s Reliance Industries has told a government-appointed panel reviewing gas pricing that any ‘retrograde’ move to artificially cap rates will add to fiscal policy instability, delays investment and dent India’s attempt to become Atmanirbhar in fuel production. In a submission to the committee headed by Kirit Parikh, which has been asked by the Oil Ministry to look at setting a ‘fair price to consumers’, the firm detailed how the economics of its about-to-start field in the KG-D6 block, where billions of dollars have been spent to recover reserves lying several kilometres below the seabed, will be impacted under different prices. The mid-course changes through price caps not just go against pricing and marketing freedom contracts and government policy promises to companies but also add to uncertainty to a fiscal regime which would impact investments, according to sources briefed on the matter and the presentation. The government biannually fixes gas prices based on rates prevalent in surplus nations. Rates according to this formula stayed below the breakeven price of USD 3-3.5 per million British thermal units for six years starting October 2015 but have jumped 5x in the last one year to USD 8.57 for old fields and USD 12.46 for difficult fields. This rise has prompted user industries to complain, following which the ministry set up a panel to suggest an affordable rate for the users. The sources said Reliance told the panel that doubling India’s production from current levels to cut rising imports and meet the target of raising the share of natural gas in the primary energy basket to 15 per cent by 2030 from the current 6.7 per cent, would require at least Rs 2000 billion to Rs 3000 billion investment, which can be viable only if a stable fiscal and contractual regime with market-based pricing is provided. Only such a regime can attract investors to commit long-term funds for the exploration and development of such areas. There has not been any large hydrocarbon discovery in the country in the last more than a decade, resulting in a sustained decline in domestic oil and gas production and the consequent rise in imports for meeting the vast energy demands of the world’s fifth largest economy. Natural gas is used to generate electricity, produce fertilisers for crops, turn into CNG to run automobiles and piped into household kitchens for cooking. In absence of adequate domestic production, India has raised imports for the fuel by paying four times to overseas suppliers than the price that domestic producers get.