Two thousand dollars for one thousand cubic meters — this mark in December, 2021 overcame the European gas market. Every consumer who unexpectedly had to pay for natural gas almost by 10 times more than throughout a two-three of years before can explain why it was bad.

But, as the great Hegel teaches us, a big plus was also hidden in this enormous price – the European market became bonus. For many years, it remained in the shadow of the Asia-Pacific market, for which suppliers fought and which took over three quarters of all liquefied natural gas (LNG) in the world. For the last year the EU was the most desired market. In honor of this anniversary we will sum up some results of this magic for Europeans the period, and also we will consider that happened to the LNG large regional markets. But we will not start with Europe.

The Australian gas against the Olympic Games

At the end of 2021 Australia declared diplomatic boycott to the Olympic Games in Beijing. The Australian mass media in eager rivalry started practicing in forecasts as China will not sustain without their gas and coal. The People’s Republic of China by the time of terrible boycott already actively increased own already cyclopean coal mining, replacing natural gas with it. Celestial Empire minimized activity at the gas exchanges. Nevertheless in 2021 it overtook Japan and escaped on the first place among world consumers of LNG, having bought, according to GIIGNL, 109.5 billion CBM (it is 15% more than in 2020). It was slightly more than total volume gas export of Australia (108.1 billion cubic meters following the results of 2021). And the country continent in 2022 unexpectedly for itself became a field of political disputes about results of the next climatic conference of the UN. One the of results of actions there was a decision to create fund for the help to the countries with weak economy. The willingness of the Australian leadership to participate in this fund as a donor caused outrage among some political forces, who began to wonder: if the country has so a lot of money, is it possible to direct them to help the part of the population that cannot pay for the electricity that has become more expensive. And it is valid, according to Australia Energy Regulator, in the third quarter 2022 averages prices of electricity showed the second-large result for the last five years. On the first place on this indicator there were data for the second quarter of the same year. By the way, gas at one of the world’s largest exporters of this energy resource that is Australia, considerably fell in price in August and September. If the word «fell in price» it is applicable in conditions when the prices remain on historical maxima ($930–1080 for 1 thousand CBM), having decreased only in relation to absolute record of July. However, already at the end of the first quarter Australia occupied the 23rd place from 46 at the prices for households (from the countries traced by GlobalPetrolPrices). For comparison: Southern Korea, one of the largest importers of LNG, on this indicator took the 18th place. And at the electric power price in March, 2022 Australia appeared on the 114th place from 148 countries. It speaks about incredibly reasonable organization of the Australian domestic market energy resources. Now the government of Australia intends to limit gas prices and coal. In November export of LNG from east coast of this country in annual expression decreased for 10% (to 2.7 billion cubic meters). Deliveries to China to the same period were reduced from 2.11 billion CBM, to 1.6 billion cubic meters. But you should not assume that it turned out to be consequence of the declared in the previous year boycott. After all export decreased to South Korea as well: from 0.46 billion cubic meters to 0.39 billion cubic meters.

Leaders of the short-term market

Australia is important not only as one of the chief suppliers of gas for Asia. It is interesting and as one of two if to trust data of GIIGNL, suppliers of the liquefied natural gas for the short-term market. Following the results of 2021 a share of the trade which is carrying out on spot or short-term (to four years inclusive) a basis, decreased with 40 to 36.6%. But relative sizes are not so important, as absolute. If in 2020 in the short-term market it was realized 192.7 billion cubic meters of gas, in 2021 – 188 billion cubic meters. Besides in 2021 514 billion cubic meters were imported that for 4.5% exceeded an indicator of 2020. Let’s notice that duration of average and long-term contracts grew from 11.7 in 2020 to 13.6 years in 2021. Long-term contracts are reliable. These are return guarantee investments. The main volumes on the short-term market are delivered by Australia and the USA. In 2021 the gas made in the United States also preferred the market of Asia to all other. There was about a half of all exported volumes. And since the second half of December, 2021 these volumes began to be developed towards Europe. The greatest falling is observed in the Chinese direction. In 2021, according to the EIA information, about 12.8 billion cubic meters left there. For the first three quarters of 2022– only 1.4 billion cubic meters (moreover, in January and May deliveries were zero at all). More were sent to Croatia for the same period of time. And deliveries to South Korea and Japan were reduced but not so considerable. In 2021 12.84 billion cubic meters and 10.05 billion cubic meters respectively were delivered to these countries from the United States. For the first three quarters of 2022 these countries received 6.1 billion CBM and 4.35 billion cubic meters. According to the American authorities, about 70% of all gas made in the USA goes in 2022 to Europe. The most considerable inflow happened to France, Spain, the Netherlands and Great Britain. It would be possible to think that the agreement signed by the president of the United States and the head of European Commission in March of this year worked. Let’s remind that then the parties agreed that «the United The states will cooperate with international partners and strive to provide additional LNG volumes for the EU market in the amount of at least 15 billion cubic meters in 2022 with an expected increase in the future.» And till 2030 the European Commission will work to increase deliveries from the USA approximately by 50 billion cubic meters. This version assumes two fantastic assumptions: that at the American president there are some powers which allow to direct the directions of gas export and that the effect from this agreement could extend not only in the future but also in past. For example, 1.48 billion CBM of natural gas were delivered to France for the first quarter of 2021 from the United States, and for the similar period of 2022 – 4.36 billion cubic meters. The similar picture was observed at the vast majority of the European the consumers possessing the LNG terminals.

LNG anomaly

The only reason for which gas streams were displaced with Asian on the European the direction is the price. Thus shift happened mainly for the account the volumes providing that short-term market. Strictly speaking, abnormal inflow of LNG to the European Union began at the end of December, 2021. As time at the moment when at the European exchanges there was a jump in prices to a mark higher than $2000.00 for 1 thousand CBM. It was then that part of the gas, not constrained by long-term contracts and a specific delivery point, focusing solely on prices (taking into account supply costs), rushed to the EU. Asian consumers actively accompanied Europeans. Above-mentioned China increased coal mining and periodically introduced anti-covid restrictions, because of which demand for energy carriers decreased. Besides, the People’s Republic of China in 2022 conducts extremely careful to the politician in the gas market, trying to minimize demand on spot platforms, showing extremely high quotations. Most part of natural gas comes to the People’s Republic of China under long-term contracts with oil binding. Such an approach in general is characteristic for Asia. In the conditions of a world energy crisis it gives a chance to hold the average prices at rather low level. Let’s emphasize – relatively. Celestial Empire reduced import of natural gas for the first 11 months by 9.7% (to 136.65 billion cubic meters). Besides in terms of money this indicator grew by a third – to $62.4 billion. LNG acted as a driver of falling. According to Wood Mackenzie, China will reduce import of the liquefied natural gas in the current to year for 14% – to 95 billion cubic meters. More impressive forecasts about decrease by 16% have been sounded earlier. But in principle the falling indicator for 14% at least corresponds to the level of the first quarter. Actually, the European inflow of LNG needed appear from somewhere. If to generalize, in 2022 it is expected the biggest decline in demand for LNG not simple in China from the moment of the first import deliveries in 2006 as the western press writes about it. In the current year for the first time from the beginning of the century of the People’s Republic of China will reduce demand for natural gas (such a probability sounded PetroChina). Some analysts are inclined to see in it next signs of the approaching crash of the Chinese economy. We do not want to upset dear analysts at all, but similar forecasts we see annually. And annually they disperse from the reality surrounding us. However, worthwhile will be to notice that China is deeply integrated into world economy, and here its health obviously leaves much to be desired. In this situation it is important for Russia that pipeline deliveries to the People’s Republic of China continue to grow. And their general level by the 2030s has every chance to reach 100 billion cubic meters. But in a present situation we can summarize that China very much helps Europe: it the companies carry to the EU excess of the liquefied natural gas, and low activity on the spot market allows avoiding price war among consumers. However it is also possible to look on this situation under another corner: power safety of the European Union now appeared on to thin thread of high prices from which the European economy suffers. As Asia enters a serious competition for gas streams with the EU, this thread can instantly break. And the European politicians as if try to approach this moment. But before passing to disturbing experiments of the European management on the energy markets of the region, we will glance to the United States.

American dream

According to EIA, in 2022 peak capacities of LNG plants in the United States had to grow by 24.8 billion cubic meters (to 125.5 billion cubic meters). In 2023 this indicator has to increase approximately by 5.2 billion cubic meters. And in 2025 – on 59 billion CBM, that is approximately to 190 billion cubic meters. But it is peak capacities, and export volume, according to EIA, had to grow in the current year for 16% (on 16.1 billion cubic meters) and to reach 116.8 billion cubic meters. Being guided on this forecast, the president of the United States also signed the Agreement of Intent with The European Union about the desire to try to increase deliveries to Europe. But real export indicators, most likely, will be lower expected because of occurred in June accident at large plant Freeport LNG. If the plant is not started until the end of the year, the American export can lag behind initial plans approximately for 10 billion cubic meters. It was expected in the summer that plant will start in July, then partial resumption of work postponed to November, and then and these terms had to be shifted – this time for December. The enterprise can reach full capacity only by March. Here it should be also added that concerning import indicators in 2021 the free capacities for reception of LNG in Europe made about 110 billion cubic meters (about 50%). But in the countries where there is a pipeline gas from Russia, this indicator reached only 70 billion CBM. Now these capacities try to increase. For example, Germany wants to start five LNG terminals. The capabilities of the United States in its ineradicable desire to help Europe limited by the capacity of LNG plants, production volumes and the fact that suppliers American gas sends its cargo mainly to where they will be paid for more. In 2021 growth of export deliveries from the USA reached a point which we predicted in 2016, – the export starts influencing the internal American prices alternative. From the second half of 2021 indicators of Henry Hub started exceeding average values over the last 10 years by 2.5–3 times. And if Europe and Asia already function as the uniform Eurasian supermarket and wait for the United States further strengthening of their influence, especially by 2025 if then plans are implemented on input of new capacities. Fortunately for the American consumers, the forecast for the fourth quarter did not come true, according to which average quotations on Henry Hub had to reach $9 for MBTU. But it did not come true because of sharp warming in Europe which coincided with delay of downloading gas in underground storages. Consumption and spot quotations fell to the EU to the minimum marks for the last year. It affected and internal American market: exchange quotations for 1 thousand CBM decreased from marks about $325 to $160, however by December they started growing again, having risen to $215 for 1 thousand CBM. It should be noted that Freeport LNG rendered huge service to the management of the United States that did not work to elections. In the fourth quarter of the current year export LNG from the USA had to increase, according to forecasts of EIA on 17% (mainly just due to restoration of Freeport LNG) – to 331.3 million cubic meters per day. Thereby additional pressure was made on the domestic American market, because of which the prices could grow. Wonderfully the lowest for the last half a year quotations on Henry Hub fell on the second half of October and the first half of November. Nevertheless sometimes major accidents happen incredibly timely. It is expected that in 2023 supply of LNG from the United States will increase by 5%.

The plan which was spread

Until now the EU does not decide to bring the Russian natural gas in the next package of sanctions. Import of gas from Russia is not forbidden and formally is not limited. But after a row of indirect sanctions physical capacities on pumping in Europe were limited. The authorities of the European Union strenuously pretend that only improbable insidiousness of Russia brought to suspension of operation of gas-distributing units which served «Northern Stream». Also only improbable insidiousness forced our country to enter the reciprocal sanctions against Poland that made inaccessible payment for gas transited on the local gas pipeline site Yamal – Europe. After all, when sanctions are imposed on Russia, it’s fair, and when it responds to them, it’s absolutely unfair. Especially diligently the authorities of the European Union now pretend that there was no act of terrorism on «Northern Streams». More precisely, it seemed to be, but there is absolutely no need to rush with its investigation or put into operation an intact thread of the Nord Stream –2. The last, by the way, was directly offered by the leadership of Russia. In 2021 pipeline deliveries from the Russian Federation provided about 30% of the European consumption. The liquefied natural gas at that time occupied 17%. Following the results of the first 11 months of 2022, the Russian direction, according to ENTSOG, decreased to 20% and LNG grew to 33%. But it is an average value which includes relatively the quiet period of deliveries which fell on the first half of the year. The data for October and November were more indicative, when a share of the Russian pipeline deliveries fell to 8%, and a share of LNG increased to 38%. Of course, in this indicator it is considered and liquefied the natural gas made in Russia, but it practically does not change an overall picture. At known degree of naivety it would be possible to assume that worked plans The European Union on reduction of dependence on the Russian gas. As part of this task, two plans were presented, in the development of which the International Energy Agency (IEA) participated. The first was presented in March. It contained 10 points, within which the European consumers were offered to increase LNG purchases, to save energy resources and to develop electric generation on renewable sources. The March plan promised decrease in demand for the Russian gas in 2022 on 50 billion cubic meters. Evil tongues could tell that, developing this plan, IEA relied on dynamics declines in demand for gas which was observed prior to the sanctions conflict between European Union and Russia. But we will not do so. Especially as in the summer European Commission submitted new, even more ambitious plan. In its framework it was supposed not less than to reduce demand for natural gas by 15% in period from August 1, 2022 to March 31, 2023. As basic value it was taken average demand for gas for the same period for the last five years. And this plan already looked exactly like a straw that would-be managers are trying to spread, from whose hands the entire European energy industry is pouring. One thing if you did not cope with crisis, and another one – if you can tell that fallings happen strictly according to the plan. Someone could think that the EU has a plan now how to reduce losses from a fuel and energy crisis. But in reality European Commission had a plan now how to explain a demand collapse.

The collapse covered with a ceiling

According to Eurostat, in August consumption of gas in the European Union fell to 14% in comparison with average value for this month in five years and for 15% – in September. By Bruegel estimates, from January till beginning of December, 2022 in the EU demand for natural gas (without the accounting of filling of storages) decreased by 11% in comparison with an average value for period of 2019-2021. We believe, it is very convenient – to consider falling, considering failure of 2020. But even in this convenient system of coordinates we see that demand in European the industries gave for 15%. If decline in demand for the same 15% from outside households it is possible to explain in the warm winter and in incredibly soft fall, in the relation the industries such reservations will be useless. It is especially remarkable that, by an assessment of Brugel, in November total demand decreased by 23%, and from the industry – on 25%. Cumulative falling in comparison with 2021 for the first 11 months made about 50 billion cubic meters. It remains only to congratulate the European Union on the fact that its deeply elaborated plans are acting ahead of schedule. And, apparently, wanting to continue to delight the public with the highest class of planning, The European Commission decided to continue experimenting in the energy market, intending to cover the collapse with a ceiling. It in principle liked to enter ceilings. And since it has already succeeded perfectly in limiting electricity prices on the territory The European Union, as well as to introduce a price limit on Russian oil, then it’s time to take up gas. The European Commission needed a year to develop a draft copy of the plan for fight against the high gas prices who else in the fall of 2021 demanded to provide European Council. Strictly speaking, the first time they talked about the price ceiling was in April. But at the conceptual level, this mechanism was presented only in the fall of 2022. In the first version of the «stretch ceiling» it was supposed to set a limit at the level of €275 per 1 megawatt/hour (about $3 thousand per 1 thousand cubic meters) on the TTF exchange, to which many long-term gas contracts in the European Union are linked. But this offer caused a question: what if Asia offers higher price and gas will sail there? Then the idea of a ceiling was improved. There was left target level $275 but brought a condition: restrictions can be introduced, only if futures for TTF exceed this level in current two weeks, and the price of TTF was on €58 higher per 1 MW  than the base price for LNG in 10 trading days in a row. Here the indignant joined the doubting. They resented the price ceiling is so high. The European central bank also joined discussion, warned that the offer of the EU can threaten financial stability and therefore needs revision. New edition of a price ceiling provides introduction of restrictions, if futures on TTF exceed €220 for 1 megawatt/hour within five days and also will be €35 higher the base price for the liquefied natural gas (on the basis of the existing estimations of LNG cost).

The «locked» gas

The European experiments with undisguised interest are watched by many suppliers, for example, Qatar where the European leaders in the current year suited the present pilgrimage. But so far they did not wish to sign long-term contracts; their visits did not meet understanding. As the greatest and only break on this direction it is possible to consider signing QatarEnergy and ConocoPhillips long-term agreements of SPA (purchase and sale contract) on delivery to 2 million tons (2.8 billion cubic meters) of LNG a year from Qatar to one of German LNG -terminals. There are not any yet. And the German chancellor Olaf Sholts promised with some (quite noticeable) delay to start the first regasification the terminal in the second half of December, 2022. It is expected that deliveries of QatarEnergy and ConocoPhillips will begin in 2026 and will last not less than 15 years. Estimated volumes in framework of this transaction are 20 times less than delivered by Gazprom to Germany. At present Qatar with foreign partners develop the North Field East and North Field South projects. Their start is planned on 2026 and 2027 respectively. These projects will allow increasing approximately by 1.5 times production of LNG in the emirate. It is necessary to notice that Qatar has no deficiency of persons interested to receive LNG from new plants. And on this background the European Union is going to introduce mechanisms which have to limit the prices. To tell that this approach does not meet understanding is to tell nothing. As for opportunities of Europe to receive LNG from other producers, here the EU rests against unwillingness to sign long-term contracts. Long-term contracts for gas contradict provisions of «the green transaction» as their execution will proceed to the planned terms of refusal of fossil fuel. That is to change the relation of the European authorities to long-term contracts, it is necessary to reconsider base of power strategy of the European Union. And without it such suppliers as Qatar, which could replace to 50 billion cubic meters of the Russian gas with the second half of the 2020s, will give preference to Asian buyers. The head of Exxon Mobil Darren Woods declared that the world, most likely, will feel shortage of LNG until the end of 2026. Of course, this term is most attached to commissioning of such large projects as North Field East and North Field South. But by and large the question of, whether will be enough liquefied natural gas or not, rests against a demand question. And demand now storms. The European Union risks losing the appeal as a large sales market for energy resources. A part of demand falling on the EU will simply disappear together with the closed enterprises and a part – will move to other regions where will go the European companies wishing bigger stability and cheap energy resources. But much more important than decrease in consumption, risk for the gas markets of the world became the «locked» Russian volumes. Because of sanctions opposition and acts of terrorism on «Northern streams» for the next years deliveries from the Russian Federation to the EU can be reduced by 100 billion cubic meters. Even taking into account the given demand the European Union should replace not less than 50 billion cubic meters of the Russian gas, which now is technically impossible to deliver to consumers. It provokes unexpected for players increase in demand in the LNG segment which will remain and in 2023. Normalization of the relations between Russia and Europe would help to solve this problem. But our partners prefer to bite the outstretched hand for reconciliation and expect that Asian countries will begin to increase demand for gas, and we will have to enter into a price confrontation with them. It is a confrontation from which Europe is not fated to come out the winner.