Asian LNG imports are set to climb higher in the future as spot procurement activity picks up in some markets on hopes of prices stabilizing after volatility and stronger infrastructure, while the market is closely monitoring Europe's dependence on LNG, and long-term contracts are expected to stay relevant, panelists at an industry event in Singapore said in the week ended Nov. 17.
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Skyrocketing LNG prices in 2022 due to the Russia-Ukraine war destroyed gas demand, leading to more fragile Asian and European markets in terms of energy security and price sensitivity, Esther Ang, head of LNG, and member of MET International AG's management, MET Group, said during a panel discussion at the FT Commodities Asia Summit.
Long-lasting effects of market volatility last year might persist for the next couple of years, Ang said. While Europe will likely inherently balance itself one way or the other, Asia offers a lot of untapped potential to absorb LNG, she said.
Seah Cyn Yi, global head, LNG trading, shipping and operations at Pavilion Energy said, the global LNG supply-demand balance has been tight because the market has a swift price response to news and events.
"This has created quite a lot of impact for Asia," she said. However, individual markets in Asia have responded differently to changing LNG market dynamics.
China's 2022 LNG imports dropped about 20% year on year, signaling it was not willing to participate in an extremely high price environment, Seah said. In 2023, China ramped up imports again, but the figures are still lower than those in 2021, she said.
China is adopting a balanced approach -- increasing LNG storage capacity, raising Russian gas flows as well as onshore pipe natural gas production, while continuing some coal production and coal-fired generation, among other steps -- because of the risk premium that Europe now places on supply security after witnessing cuts in Russian gas flows, Seah said.
"Japan and [South] Korea have a completely different dynamic from China, probably still very supply security centric," Seah said, citing slight increases in 2022 LNG inflows into the countries despite high prices.
A "tremendous growth story" is also shaping up in parts of Southeast Asia, including Thailand, where spot LNG cargo procurement continued despite a high price environment, Seah said.
The Russia-Ukraine war altered LNG market dynamics, "largely making it a European story," Dinesh Kumar, vice president LNG Trading at GAIL Global Singapore said, adding that the next growth story will come from Asia, which is set to see increased buying activity from 2025-26 when a new tranche of LNG supply comes online globally.
Asia-Pacific demand is expected to surge 36.5% to 344 million mt/year in 2028, from 2022 levels, according to S&P Global Commodity Insights.
Meanwhile, Domenico De Luca, CEO Axpo Solutions, said that in Europe, LNG had been instrumental in compensating for the loss of Russian gas supply. However, it was important to watch out for Europe's future gas demand.
Some of the demand destruction has been natural because it was about building efficiencies, but some of it has come as industries were forced to shut down, which is less positive, he said.
Europe has also seen a "very responsive" buildup of regasification capacity, which makes it more resilient in the future and makes the LNG market more variable and liquid, he said.
Kumar said it made more sense to seal long term-LNG contracts to help mitigate price volatility and supply risks.
A recent spurt in long-term contracts by some oil majors signifies a commitment to ensure long-term security of supplies as "LNG continues to be a solution to ensure we get to the sustainable carbon agenda safely and not have the lights go out in the middle of that journey," Seah said.
Europe needs gas to bridge the energy transition gap for at least 20 years, De Luca said. While hydrogen is considered a replacement, the pace of its development has not accelerated, De Luca said. So, gas will be important, and companies will be advised to close long-term agreements, he said.
When you sign a very long-term agreement, you tend not to spoil the relationship or make it less pleasant because it takes a very long time to close a long-term deal, Ang said.
One-off events and conflicts around deliveries could occur but generally in the industry, when parties get into long-term contract, they are serious about collaborating and finding mutual win-win solutions, she said.