Gas Market Report, Q2-2023

Gas Market Report, Q2-2023

Executive Summary

Global Gas Markets Gradually Rebalancing

• Market Rebalancing: Following the supply shock caused by Russia's invasion of Ukraine in February 2022, global gas markets began to move towards a gradual rebalancing by the end of the 2022/23 heating season.
• Price Reduction: Spot gas prices in key markets like northeast Asia, North America, and Europe fell by nearly 70% between mid-December 2022 and the end of the first quarter of 2023.
• Storage Levels: Storage sites ended the heating season with inventories well above their five-year averages, reducing the need for storage withdrawals during the summer.

Key Points

European and Global Market Impact

• Supply Shock: In 2022, Russia sharply reduced pipeline gas deliveries to the European Union by 80%, leading to a global energy crisis and significant increases in natural gas prices.
• Gas Consumption: Global gas consumption decreased by 1.5% in 2022, similar to the drop seen in 2020 during the initial wave of COVID-19 lockdowns.
• Demand Reduction: The majority of the demand reduction was concentrated in key European and Asian import markets.

Regional Highlights

• North America: Gas demand increased during the winter but is expected to contract in 2023.
• Central and South America: Gas consumption saw a limited decline in 2022 and is expected to stabilize in 2023.
• Asia: Asian gas demand faced pressure in 2022 but is expected to recover modestly in 2023.
• Europe: European gas demand dropped by a record 55 bcm during the 2022/23 heating season due to mild weather, energy-saving measures, and reduced industrial gas use.
• United States: Natural gas production maintained growth, particularly in the Permian region, with output remaining close to the record 100 bcf/d mark in Q1 2023.

LNG and Supply Dynamics

• LNG Supply: LNG became a major baseload supply for Europe, accounting for two-thirds of imports during the 2022/23 heating season.
• US LNG Supply: The United States is set to drive global LNG supply growth in 2023.
• Spot Prices: Global LNG demand moderated in Q1 2023 but remained strong in Europe. US natural gas production is expected to continue growing but at a slower pace.

Storage and Inventory

• Storage Levels: Storage levels closed the 2022/23 heating season well above their five-year averages.
• Future Outlook: In the European Union, storage injections equal to half of last year’s would suffice to reach 90% fill levels by the start of the 2023/24 heating season.

Emerging Technologies

• e-Methane: E-methane is being developed as a sustainable alternative, characterized by a complex value chain with substantial efficiency losses and high production costs requiring further technological development and policy support.
• Japan: Japan aims to meet 90% of its city gas supply with e-methane by 2050 and is actively developing international value chains for e-methane.

Conclusion

While the current outlook for gas markets is cautiously optimistic, the continued focus on mitigating potential risks and ensuring supply security remains crucial. The global gas market remains subject to a wide range of uncertainties, including adverse weather conditions, lower LNG availability, and potential further declines in Russian pipeline gas deliveries to Europe.