Sun. Jan 29th, 2023

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

November 21, 2022

Energy security is national security for every country, it takes political leadership and vision, as well as long term commitment. Further there is not a risk-free approach. European nations have depended on steady Russian pipeline gas supply for years and favored short-term LNG contracts because they were flexible. Unfortunately, after the broke out of Ukraine war, Europeans rushed to sanction Russian energy without any back up plan that caused the severe energy shortage all over Europe. It will be a very cold and dark winter!

If Europe politicians sanctioned Russian gas supply because over-dependence, they should realize that they are also over-dependent on short-term LNG contracts. The global LNG market is expanding but significant long investments are needed, because the infrastructures are expensive and takes time. In the past, Europeans have determined that they will lead the world on decarbonization, there is no long-term commitment on investing fossil energy, including LNG, projects. Even now, “Germany remains wary of agreeing to a long-term LNG contract while also planning to phase out fossil fuels.”

Germany still is the world 4th largest economy and the largest economy in Europe, so Germany may be able to cover the expensive LNG spot contracts now. However, the current severe energy shortages in Europe will inevitably cause economic recessions for years. How Germany and other European nations will be able to cover the expensive spot-market LNG contacts for at least three more years? The other unknown is when and how the war in Ukraine will be settled?

If the world cannot manage these short-term challenges, why worry about the global climate change?

Global LNG Supplies Are ‘Sold Out’ for Years, Top Importer Warns

Shoko Oda Sun, November 20, 2022 at 8:27 PM

(Bloomberg) — Japan warns that global competition for liquefied natural gas is set to intensify over the next three years due to an underinvestment in supply.

Long-term LNG contracts that start before 2026 are sold out, according to a survey of Japanese companies conducted by the trade ministry and released Monday. These types of contracts are essential for buyers, as they offer stable pricing and reliable supply for many years.

Countries around the world are scrambling to secure shipments of the power plant and heating fuel from major exporters like Qatar and the US, but there is little new supply coming online before 2026. Meanwhile, Europe is racing to replace Russian pipeline gas with LNG, further exacerbating the global shortage of fuel.

This means importers will be forced to depend more on the volatile and expensive spot market, which is currently trading nearly three times higher than long-term contracts. Roughly 30% of all LNG deliveries were via the spot market last year, according to the International Group of Liquefied Natural Gas Importers.

A lack of investment in LNG export projects means that supply will be very tight for years, the trade ministry document said. If Russian pipeline gas to Europe is cut completely, the world could see a shortage of 7.6 million tons of LNG in January 2025, equivalent to one month’s worth of imports to Japan, according to the document.

Japan has been taking steps to ramp up energy security by enabling the government to purchase LNG from the spot market in the event companies cannot.

Sinopec signs 27-year LNG deal with Qatar Energy, to improve energy supply security

By Global Times Published: Nov 21, 2022 10:46 PM

China’s Sinopec said on Monday that it has signed a 27-year deal with QatarEnergy for liquefied natural gas (LNG), and Qatar Energy will supply 4 million tons of the fuel each year.

Reuters reported that it is the longest-term LNG agreement so far.

It is the second sales and purchase agreement (SPA) signed between Sinopec and Qatar Energy, and it is the first long-term LNG SPA for the North Field expansion project, according to the official WeChat account of Sinopec. 

The North Field expansion project is expected to come into operation in 2026. The North Field, the largest natural gas field in the world, is jointly owned by Qatar and Iran.

UPDATE 5-Qatar seals 27-year LNG deal with China as competition heats up

Andrew Mills and Maha El Dahan

Sun, November 20, 2022 at 11:47 PM

DOHA, Nov 21 (Reuters) – QatarEnergy has signed a 27-year deal to supply China’s Sinopec with liquefied natural gas in the longest such LNG agreement to date as volatility drives buyers to seek long-term supplies.

Since Russia’s invasion of Ukraine in February, competition for LNG has become intense, with Europe in particular needing vast amounts to help replace Russian pipeline gas that used to make up almost 40% of the continent’s imports.

“It signifies long-term deals are here and important for both seller and buyer,” he said in an interview in Doha, adding that the deal was the LNG sector’s largest single sales and purchase agreement on record.

“It sends a message that a lot of Asian buyers are actually approaching us to have a long term deal because they see the volumes of gas that are coming in the future are less and less.”

LONG-TERM SUPPLY

Qatar is already the world’s top LNG exporter and its North Field expansion project will boost that position and help guarantee long-term supplies of gas to Europe as the continent seeks alternatives to Russian flows.

Kaabi also said there was more realisation globally that gas should be an essential part of any energy transition.

The pricing of the Sinopec deal will be similar to others in the past that were linked to crude oil.

Important buyers that want to commit for the long term on a substantial volume want to see part of the benefits of the upstream business… so I think it’s an important win if you will and it makes the partnership even more solid.”

China signs $60 billion LNG deal with Qatar – one of biggest deals ever for the highly coveted fuel

Brian Evans

Mon, November 21, 2022 at 6:16 AM

The massive LNG deal comes as the market remains tight, with little extra flows expected to ease price pressures until 2026.

Europe has pivoted toward a greater dependence on LNG in response to the loss of Russian gas. But top European customers haven’t made any real headway with Qatar, though, as countries like Germany remain wary of agreeing to a long-term LNG contract while also planning to phase out fossil fuels.

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