For the first six months of the last year the world market of the liquefied natural gas (LNG) grew on 5% and pipeline deliveries were reduced.

Most likely, forecasts of the International Power Agency (IPA) that in 2020 the volume of trade of LNG will bypass sales of pipeline gas ahead of schedule come true. It has to serve as the beginning of global transformation during which the regional markets of gas at last will unite in the uniform world market. But actually it is still far for formation of the real world market, and growth of sales of LNG was only a crisis consequence when not a lot of producers of the liquefied gas could hope for receiving profit. Koronacrisis proves impracticality of LNG to conditions of price war, unreliability of this resource in the conditions of low prices once again. Besides, it reminded a simple fact: all suppliers need not a conflict they need a growing demand.
Everything is learned in comparison. Beginning of last 2019 was considered difficult for the market of gas, but now it already seems very quiet: small ripples against a 10-mark storm. It is worth beginning with the small retrospective covering several years. It is impossible to understand fully the reasons of a number of the events which occurred for the last months and the nature of some forecasts without it.
Let’s begin with that the Russian pipeline deliveries to Europe bury long ago and persistently. For example, the beginning of 2010 passed under the sign of the future crash of Gazprom under blow of slate gas which will start being got just about in the European Union. And to the middle of decade the liquefied natural gas made in the USA was appointed to a role of the winner in fight with natural gas from Russia.
In 2014 large crisis in the market of hydrocarbons during which staple prices fell considerably burst. In 2016 there took place rehearsal of the price war in attendance order which eloquently showed weak fitness of many suppliers of LNG to low prices. Some perspective suppliers of liquefied natural gas had to realize the product one quarter cheaper than prime cost.
At that moment some prominent experts saw in it the next beginning of the end of Gazprom. In the Russian press the following forecast with all seriousness sounded: in 2018 gas prices will fall in Europe to 108 dollars that will allow LNG winning against pipeline deliveries. Probably, it was supposed that the Russian side will not sustain such low prices. Though even before the devaluation of ruble which began in 2014, Gazprom could keep profitability of deliveries and at lower prices. Actually, an average price of gas in 2018 in the European market was significantly higher, than promised courageous forecasts. In 2019 it also deceived expectations of courageous predictors though the prices of hydrocarbon raw materials fell again (so, in 2018 oil of the Brent brand cost an average of 71.21 dollars, and in 2019 – 64.34 dollars for barrel).

Repetition of the passed

In 2018 there was an event which negatively affected the market of gas: in the fall China entered protecting duty on the LNG made in the United States. It led to partial repetition of the scenario of the end of the 2000s when Qatar was compelled to develop a part of the deliveries to the market of Europe because of mistakes in forecasting of demand for gas in the USA. Then in the EU there was an offer surplus that delighted some European officials. They hoped that the surplus will become the long-term phenomenon which at last will turn the European Union into the market of the buyer dictating the will to suppliers. But literally within one and a half — two years from a surplus did not remain also a trace as Qatar did not begin participating in a price war and reasonably carried LNG to Asia where demand just grew.
Let’s not be tired to repeat that producers of gas want to earn on the goods but do not participate in doubtful adventures. From this rule there are exceptions which are ready to pay for honor to get on the European market the lowered price and thus to build gas pipelines which extent is disproportionate exceeds their power. But these exceptions confirm the rule only.
So, in February, 2019 the last freight of the LNG made in the USA came to China. The American gas was present in the People’s Republic of China market since 2016 — the first year of the beginning of export deliveries. For the last quarter 2017 to this country record volume was delivered — about 2 billion cubic meters (68.5 billion cubic foots) of gas.
It is very difficult to overestimate a role of China as the buyer of LNG. It is the growing market for which it is necessary more and more gas. In 2017 52.9 billion cubic meters of LNG, in 2018 – 73.5 billion cubic meters, in 2019 – 84.8 billion cubic meters were delivered here. Besides meanwhile the People’s Republic of China takes the second place in the world on demand for the liquefied natural gas. But Japan and South Korea (the first and third places respectively) reduced import last year. That’s not saying much in itself but for understanding of scale we will notice: Japan only consumes more LNG than all European Union.
From 2010 to 2019 demand for gas in China increased from 108 billion cubic meters to 306.7 billion cubic meters. It is planned to continue increasing this indicator. Running forward, we will notice that even 2020 could not prevent these plans strongly.

Everything is in excess

And here such perspective market was closed for suppliers of the American LNG. A part of volumes was forcedly developed towards Europe. France, Spain, Italy and the Netherlands became the main buyers of American gas in the EU. Also in process of forces a helping hand to the American partners was given by Belgium, Greece, Poland and Portugal. And absolutely microscopic volumes periodically reached Lithuania.
Certainly, it is possible to object that deliveries to France and Spain were comparable to the record deliveries to China therefore these markets can be considered as equivalent. But the matter is that the People’s Republic of China attracted due to continuous growth. New American capacities for liquefaction which in other situation could compete with Australians for the Chinese market were put into operation. And nobody expected special increase in demand from the EU.
According to different data, the total amount of supply of the American gas to Europe in 2019 made 17.2-18.5 billion cubic meters (in 2018 – 3.5 billion cubic meters). For comparison: the Russian producers at the same time sold 18-20.5 billion cubic meters of LNG in the EU. That fact that these deliveries came to the growing market appeared the most amazing.
In 2019 total amount of demand for LNG in Europe (without Turkey) made 100-108 billion cubic meters, that is almost double increase in comparison with 2018 was observed. It was caused by a combination of a set of factors the most important of which were low prices (130-150 dollars for 1 thousand CBM in the spot market) in combination with an offer surplus.
The situation was warmed up with that the award which was got by sellers of LNG in the market of Southeast Asia, in comparison with Europe decreased to insignificant marks about 0.5 dollars for 1 million BTE (about 18 dollars for 1 billion cubic meters).
On this background as if in a rush of some inexpressible despair or thoughtless bravado investment decisions on additional 90 billion cubic meters of capacities for liquefaction started being made. And the prices fell meanwhile.

Surplus potential and real

If to simplify the situation a little, the main brimstone for the market in general and for Gazprom in particular is an offer surplus caused by emergence of new and new LNG plants. For example, in 2019 the USA added about 22 billion cubic meters (16 million tons) of capacities for gas liquefaction. Thus inputs of new installations in 2021-2023 were announced. In the conditions of a visible surplus of the offer it made negative impact on the market.
However a risk of a considerable surplus of offer looks absolutely differently if to pay attention to objectively existing surplus of capacities. The last years it remains at the level of 100 billion cubic meters (72.3 million tons in 2019). Demand for the liquefied natural gas grows, and the volume of idle capacities remains.
In the field of the LNG terminals situation even is more colorful: regasification power, according to GIIGNL, makes 1.27 trillion CBM a year. By the way, in Europe, even after last year demand grew, about a half of regasification capacities stood idle. After all at the moment the total power of the LNG terminals in Europe makes 218.4 billion cubic meters. Turkey can buy 26 more billion cubic meters. But also it, according to BP, bought only 12.9 billion cubic meters of liquefied natural gas in 2019.
On the one hand, this situation can be considered as a certain technical basis for the future increase in demand. After all at first it is necessary to construct terminals for reception of the liquefied natural gas and then to buy it. For example, in China in 2019 two new regasification terminals started working. But the nature of growing demand in Europe differs from Chinese and will hardly have long-term character.
In 2019 fears concerning the transit contract between Russia and Ukraine reigned in Europe. All countries of the region actively accumulated stocks, being afraid of failure of deliveries at the beginning of 2020. And the surplus of the offer reigning in the market provided technical capability to increase purchases at the desirable prices only. And at other price level similar would be impossible.

Presentiment of the world market

Specific conditions of 2019 started having negative impact on the gas markets in 2020 prior to the beginning of the koronacrisis. In January there were lower than 150 dollars for 1 thousand CBM on the main European exchange platforms (the British NBP and the Netherlands TTF) of gas price. And in February they reached 100 dollars. Thus the prices on Asian platforms were comparable. Forecasts about long-term character of such situation began to sound: low marginality of deliveries, surplus of the offer and inevitable victory of the renewables.
Yes, the last statement seems too unexpected in the context of gas deliveries, but favorably to mention prospects of RES at any convenient and inconvenient case is a rule of a good form in modern power. The market grows or falls, the prices fly up or fall down, punching a ferroconcrete mark «zero» — predict rapid growth of renewable generation. Otherwise you can be suspected of inappropriate and reprehensible sympathies for oil and gas.
And after all if these forecasts were right, there would be fundamental changes in the market of gas. For a start Asia would lose a dominant position as the main buyer of LNG. Till 2019 76% of all world demand were a share of it, and the countries of Europe remained noticeable, but in small market in 50-60 billion cubic meters. The prices in China, Japan, South Korea and other countries of the region were practically always much higher than in Europe. Therefore sellers willingly carried gas in this direction. But, as we already know, by the beginning of 2020 the situation changed a little.
According to GIIGNL, in 2019 a share of Asia was reduced to 69%. Thus the market extended on 13% — to 489.6 billion cubic meters. It is remarkable that the gain made about 56.5 billion cubic meters, and it is approximately equal to that volume by which demand in the European Union increased. A share of the LNG bargaining on a spot or short-term basis grew from 32% to 34% (on 27.2 billion cubic meters). There is a speech about these volumes when we mention quotations on gas hubs. The most part of LNG is protected by long-term contracts the price on which can differ considerably from the exchange.
But after all, some forecasts speak about the future growth of a share of spot trade in the liquefied natural gas. And if thus the prices in all regions of the world are approximately identical, it will mean fundamental shift in the market — creation of the real world market of gas.
Still that does not exist, and the markets of gas have pronounced regional character. As a rule, it is connected with that transportation of gas is carried out generally on pipelines. Respectively, a supplier is attached to one key market. A possibility of formation of the global market of gas is just also connected with LNG production development.
It will not be too big exaggeration to tell that at the beginning of 2020 we tried to live in conditions of the world market of gas. And at this stage such a situation was not pleasant to none of players.
By the end of January, according to the Center of Power of the Moscow School of Management Skolkovo, there were 78 billion cubic meters of gas in underground storages (UGS) of Europe — 20 billion more than in the previous year. And the matter is not only in initially bigger quantity of the saved-up stocks but also in warm windy winter which did not promote fast sale of surplus. Moreover, if at the end of January, 2019 UGS were filled on 54%, by the end of February, 2020 this indicator made 62%. It is a record for all history of observations.
Supply of LNG to the European market in the first quarter continued to break records: about 29 billion cubic meters. It is more, than for the same period of 2019. A considerable share of these volumes accounted for the ultralow spot prices which by the end of March managed to fail to 80 dollars for 1 thousand CBM. And here in Asia they appeared higher than 100 dollars. Such a gap at higher prices looked lightly, but in the situation when marginality of deliveries to the EU started aspiring to zero, the ATR market became more and more attractive.
And then April came.

To fall in 2.5 times

By March China which appeared the first country which faced COVID-19 epidemic managed to frighten the world markets strongly. In February demand for gas fell to 10% in comparison with the same period of 2019. PetroChina declared force majeure under some contracts: both on LNG and on pipeline (from Southeast Asia). The Shell Company suddenly found technical problems at the Australian plant Prelude. Problems were so serious that LNG production had to be suspended. Qatar started revising the plans for expansion of gas production. Mixed players of the energy markets put on a pause the projects in the field of liquefied natural gas production.
There were also those who at first were delighted to low prices and started buying actively LNG, but in some weeks were compelled to cancel tenders for new parties.
In the USA meanwhile gas prices drop even more vigorous than in Europe. It was scary favorable to owners of gas power plants. And at first the oil and gas branch even set new records on production. Especially the largest formation of Marcellus differed. But at the same time the companies started reducing capital expenditure. The quantity of the boring began to fall after the prices.
In other words, domestic demand in the USA grew, the prices fell and capital expenditure was reduced. And the Ministry of Energy of the USA at the same time shared very optimistic forecasts: to increase supply of LNG in 2020 on foreign markets approximately on 20 billion cubic meters (to 67 billion cubic meters). And after all it was expected few years ago that by 2020 America will export 90 billion cubic meters. However, gradual and unostentatious reduction of gas ambitions of the USA became ordinary.
Certainly, supply of LNG from the United States did not stop. But already in the first quarter some buyers started refusing purchase of the LNG made in the States. The situation was brightened up a little by possibilities of the spot market and the increased activity of some countries. For example, Turkey absolutely unexpectedly in January-February bought record amount of the American gas – 1.6 billion cubic meters However, its activity did not last for a long time — in March purchase fell, and in summer reached the minimum values — 91 million cubic meters in three months.
Besides, within normalization of the relations between the countries China started buying gas from the United States again. From March to August it was bought about 2.2 billion cubic meters. In China March became the month of an exit from the koronacrisis. The main volume of demand for energy carriers was restored. And here everything only began for the USA. By the end of March on liquefaction the record volume of gas — about 280 million cubic meters per day was delivered to the USA. In only two months this indicator should fall on two and half times.

Not to deliver anything anywhere

At the beginning of April in the States production of oil failed, but gas production remained at high level. Moreover, for March-April record indicators on the largest slate formations had. However, as showed experiment of crisis of 2014-2016, production of natural gas falls too after oil with some delay. This time the American slate gas did not begin to wait for some months and started falling in May, slowly but confidently. At the same time the quantity of rigs was more than twice reduced.
In April export of the American LNG started showing anti-records. At the beginning of spring some experts still kept muted optimism concerning deliveries from the USA. Even it was noted that the fallen prices of Henry Hub is a big plus as the price of the American gas is attached to this indicator and then it is lower that deliveries are more effective, though the extracting companies hardly agreed with such statement of a question. But in April of the quotation of Henry Hub were made even to quotations of the European and Asian platforms. More precisely, it is Eurasia fell to the American price level — to 70 dollars for 1 thousand CBM. And in some cases the European exchange platforms showed absurdly low indicators at all: about 40 dollars for 1 thousand CBM.
And this level was incredibly low for the American LNG which and in 2019 hardly made ends meet. Let’s remind that its price consists of several elements. Among them is the payment to plants protected by the principle «liquefy quotations of Henry Hub, loss at liquefaction or pay» and after all also expenses on transportation. In some days 2020, especially successful for the market, transportation costs for the American LNG could be approximately equal to quotations at the European exchanges. But also there was not any hope for receiving profit on these deliveries though to Europe or to Asia without it. And long-term contracts not really helped with this situation. Even more often it was simpler to buyers (traders) to refuse acquisition of the delivered volume of gas and to pay plant a penalty than to carry freight to the final buyer.
This was not about profit and even bringing losses to naught any more. It was talked of the amount of these losses. It should pay for liquefaction all the same, but even without this sum sale of the American LNG in any market would yield a loss. Therefore it was more simply to pay plant and not to carry anything anywhere.
On this exclusively favorable background the third production line of Freeport LNG plant was put into operation. And more successful colleagues of Freeport LNG started transferring with the doubled force earlier announced projects to more remote terms. But at the same time China started actively buying LNG. Asian quotations became the highest in the world again.
Meanwhile the boom of LNG stopped in Europe against the restrictive measures taken against distribution of COVID-19. But pipeline deliveries also fell, including from Russia. It once again proves the fact that there are no winners in the current crisis. There are those who lost less than others, kept business, continued investing and did not remain on fragments of suddenly last price war on which not players battled with each other and the market battled against all players at once.

Asian turn

At the time of the maximum decline in demand for MEA energy carriers prepared the forecast according to which demand for gas in the world had to fall following the results of 2020 on 4% that is to record 150 billion cubic meters. And restoration of the market had to become painfully slow and last for years. Later this forecast was revised — falling had to make already more modest 3%. After all the market was restored quicker than it was supposed.
Restoration of the prices on the American and European exchange platforms began at the end of summer. And in Asia they reached pre-crisis indicators (about 150 dollars) at all. Demand grew, and the offer in comparison with 2019 was more moderate due to low activity of the weakest players. In other words, deliveries from the United States considerably fell. To the middle of year buyers refused approximately 110 freights. All the same as though the American plants for few months stopped working.
Not least for this reason growth of supply of LNG on 5% for the first half of the year was replaced by growth on 1.3% in eight months. The buyer was ready to take gas at below cost price but already 100-130 dollars became a significant brake.
In the fall increase in demand for gas was accelerated. At last quotations on the European platforms rose to comfortable to most of players of levels — 180-190 dollars for 1 thousand CBM. Even the United States could increase export; though in October it was still 19% less than at the beginning of a year. But it was enough that fears about a new surplus of the offer in the EU market started sounding. But in that case the prices would fall again, and after them supply of the American LNG again would decrease. It is vicious circle.
Fortunately, China showed stability, phenomenal for 2020, and ability to develop in the most severe conditions. At the beginning of November it became known that it increased import of all types of natural gas in September on 16% — to 9.9 billion cubic meters. An average price of the gas bought from external suppliers exceeded 200 dollars. And in total for the first three quarters the People’s Republic of China increased import of natural gas on 6.8%, having reached 95.2 billion cubic meters.
It is predicted that during current heating season demand for gas will increase on 10%. It already favorably affects loading of Force of Siberia, which «well-wishers» managed to bury several times during 2020. Besides, it led to a new Asian turn. «Excess» of  LNG floated there where for it offered more money. In this sense it is impossible to hope for the liquefied natural gas from the strategic point of view if you are not ready to pay for it more than other players. Europe is not ready for it. It can increase deliveries only at low prices which are approximately equal in all regions of the world. That is in the conditions of that false world market. By September of purchase by Europe of the liquefied natural gas were reduced on 3.9%, to 64.2 billion cubic meters. Then falling was aggravated. Intake of gas in a pipeline network of Europe via the LNG terminals in December, 2020 decreased in relation to December, 2019 almost on 40%. Approximately same dynamics was peculiar to all fourth quarter 2020 (-30% in October and-39% in November).

Shop and hypermarket

2020 proved once again that LNG from the United States can exist in the market only in hothouse conditions of high prices and a growing demand. It is incapable to compete not only with the Russian pipeline gas but also production of the vast majority of other producers of LNG.
By the way, in November of Uniper declared revision of plans for the LNG terminal in the port of Wilhelmshaven (Germany). It is considered that the terminal was intended for import of the liquefied natural gas made in the USA, besides it is not a whim of the company and its reaction to lack of sufficient interest of participants of the market in these capacities.
It will be fair to note also the fact that the Russian gas has weak points too. If buyers have an opportunity to satisfy demand with suddenly fallen in price LNG to the detriment of purchases of natural gas at Gazprom, the buyer will buy LNG. A striking example of it is Turkey. For it the first half of the year passed under the sign of active purchase of the liquefied gas at below cost prices with simultaneous decrease to long-term minima of deliveries from Russia. Knock-down prices ended — active purchases also ended. Now pipeline deliveries to Turkey are restored to normal levels.
Gazprom in this situation is spoken well by that fact that owing to diversification of business and rather low expenses on production and transportation of gas it can wait the period of abnormal demand and the abnormal prices. In this sense the competition with the majority of small producers of LNG reminds the competition of a small shop and a hypermarket. The shop can begin thoughtless sale and for the short period of time lure some buyers, but it will not be able to do business long in such mode. Resources of hypermarket are much more.
So, any supplier of LNG is not capable to sell gas long at the ultralow prices. Either demand will grow as well as prices with it or LNG will go where more money will be offered for it, Or that is possible too, a part of LNG plants will be compelled to stop production (for purely technical reasons), that is the offer will be reduced. If the period of low quotations lasts long enough, most of small and average players would remain on fragments of price war.
At the time of writing of this material Europe and Russia enter restrictive measures again. But all countries try to avoid repetition of spring decline in demand for energy carriers. However the situation remains uncertain. But uncertain it remains only on a short-term outlook.
And in medium-term the situation is extremely clear: production of own gas in the EU falls, coal power plants are closed, and on that side of Eurasia — in South Korea are going to replace a part of nuclear power and coal plants gas by 2034. Besides, China continues to increase consumption of energy carriers persistently, so, demand for natural gas will grow.