Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the BNF podcast. Last year was tumultuous for the global
Speaker 1: gas market. Russia's invasion of Ukraine led to disruption and
Speaker 1: volatile prices as European nations rushed to find new sources
Speaker 1: to replace established Russian supplies. This in turn resulted in
Speaker 1: prices on the Dutch TTF benchmark hitting a record high
Speaker 1: of nearly three hundred euros per megawatt hour in August
Speaker 1: of twenty twenty two. Prices have since returned to some
Speaker 1: sort of normality, albeit still elevated against historical averages. But
Speaker 1: as we once again approach winter, just how full are
Speaker 1: European gas stores and what is the global picture for
Speaker 1: gas supply and demand? While on today's episode, I speak
Speaker 1: with bn EF's head of European Gas, Irina Sarada, and
Speaker 1: also the head of Global leg as well as apat
Speaker 1: Gas for BNF Abhishek Rohatki. Today we discuss how full
Speaker 1: gas inventories in Europe are and which countries are meeting
Speaker 1: the demand and what's happening on the Asian continent where
Speaker 1: we typically find the growth markets. We also go through
Speaker 1: the potential impact of the weather on gas markets during
Speaker 1: an El Nino year, and how climate change poses a
Speaker 1: real challenge to forecasting. Lastly, we touch on how some
Speaker 1: European countries are actually looking to store their gas in Ukraine,
Speaker 1: as well as what new projects will be coming online
Speaker 1: to increase global gas supply in twenty twenty four. If
Speaker 1: you'd like to learn more, BNIF subscribers are going to
Speaker 1: be able to access bnef's Global Winter Gas Outlook, which
Speaker 1: this show is based on, and they can find it
Speaker 1: on BNF dot com or at BNF go on the
Speaker 1: Bloomberg terminal, or on BNF's mobile app. As always, if
Speaker 1: you like this podcast, if you subscribe, you'll receive an
Speaker 1: update when future episodes are published. And if you give
Speaker 1: us a review or a rating on Apple Podcasts or Spotify,
Speaker 1: you're going to make us more discoverable by others. Now,
Speaker 1: let's jump into the conversation with Arena and Abashek about
Speaker 1: the Winter Gas Outlook. Arena, thank you for joining us today.
Speaker 1: Thank you, Ana and Abhishek, thank you for joining as well.
Speaker 2: Thank you, Dana.
Speaker 1: So we are here to talk about well the next
Speaker 1: half year of what's going on in the global gas markets,
Speaker 1: and we're going to talk about LNG. But this actually
Speaker 1: is a show very much based on reports that we
Speaker 1: put out twice a year, which are really important pieces
Speaker 1: of research. We put a lot of effort into these.
Speaker 1: We are here today to talk about what's happening with
Speaker 1: the global gas markets. Last year, it made headlines all
Speaker 1: over the world, and in particular from where I'm recording
Speaker 1: in Europe, it was one of the things that everyday
Speaker 1: people were talking about because of how much it impacted
Speaker 1: our energy prices at home. Of course, those in the
Speaker 1: gas space are looking at this every single year, every
Speaker 1: single moment, every single day, and we put out two
Speaker 1: reports a year, half yearly, one which is our Summer
Speaker 1: Gas Outlook, and one that is our Winter Gas Outlook.
Speaker 1: Can you explain to the lay person who's potentially listening
Speaker 1: right now why we do these reports at half yearly
Speaker 1: intervals and really who they're designed to target and who's
Speaker 1: actually listening closely to what we're saying about the upcoming
Speaker 1: half year in the gas market.
Speaker 3: Thanks, Dana's that's a really good question. So usually we
Speaker 3: put two outlooks just before the beginning of each season,
Speaker 3: so our winter season in gas world starts in the
Speaker 3: beginning of October and last till the end of March,
Speaker 3: and our summer season starts in April and goes all
Speaker 3: the way till the end of September. So that's why
Speaker 3: we are producing our outlook just before those season to
Speaker 3: give market players a bit of a perspective and share
Speaker 3: our view of what's going to happen for the upcoming
Speaker 3: whole gas year. So we are producing for two seasons ahead.
Speaker 1: So let's talk a little bit about where we were
Speaker 1: this time last year, what was the background, and essentially
Speaker 1: why was LNG and the existing gas pipelines so much
Speaker 1: at the front of everyone's thoughts in the twenty twenty
Speaker 1: two twenty twenty three winter.
Speaker 3: So last year, as Europe was heading into the winter season,
Speaker 3: it lost around the third of it supply that was
Speaker 3: previously coming from Russia, and as you can imagine, it's
Speaker 3: been quite a shock for the market to balance, and
Speaker 3: there's a response to that. Europe turned to LNG, so
Speaker 3: that's liquefied natural gas, the one that comes on ships
Speaker 3: or on vessels, and Europe turned in particular to the
Speaker 3: Global flexible or spot LNG, so the one that is
Speaker 3: not tied up into contracts, and the challenge with that
Speaker 3: is that Europe has to go on a global market
Speaker 3: and compete with other players in order to win that
Speaker 3: share of LLERG. So that's triggered the push into gas
Speaker 3: prices going to the record level high that we've seen
Speaker 3: last year, and that's been a challenge for the market
Speaker 3: players to see how it's going to unfold and how
Speaker 3: to balance the market. So traders and other market players
Speaker 3: were facing a lot of uncertainty on the market as
Speaker 3: we were heading into the winter. Is it going to
Speaker 3: be a cold winter or is it going to be
Speaker 3: a warm winter? Do we have enough gas in storages
Speaker 3: to survive that winter? So those were a big question
Speaker 3: marks for the market players to handle on the demand side,
Speaker 3: and then on the supply side, they were worried about
Speaker 3: how much of that spot lergy Europe can bring into
Speaker 3: the region. And back then, our guest team was forecasting
Speaker 3: that Europe will survive the winter and will end the
Speaker 3: winter with a reasonable amount of gas in storage and
Speaker 3: indeed we'll have enough gas to go through the restocking
Speaker 3: season during the summer period, And to be frank with you,
Speaker 3: that was not an easy statement to make back then
Speaker 3: when everyone was worried about the crisis and Europe not
Speaker 3: surviving without the blackouts. But the reality is that Europe
Speaker 3: ended winter season with storages being well about seasonal normal,
Speaker 3: and now we are in the end of the summer
Speaker 3: season and Europe is closed to reach one hundred percent
Speaker 3: full of storage levels. So indeed, our guest team was
Speaker 3: right and we predicted that it's going to happen and
Speaker 3: Europe will go through the winter without facing the blackouts
Speaker 3: and will have enough gas to go through the summer season.
Speaker 1: What were the reasons last year, in addition to war
Speaker 1: taking place Ukraine, what were the reasons that Europeans storage
Speaker 1: of gas were solow headed into that period.
Speaker 3: Yeah, So even the year leading to the twenty twenty
Speaker 3: two when we see this crisis unfolding, Russia stopped sending
Speaker 3: the regular amount of gas into Europe and that's why
Speaker 3: the storage level has been even lower compared to the
Speaker 3: seasonal normals. So everything was leading up to it.
Speaker 1: So with the reduction in supply to Europe, the gas
Speaker 1: had to go somewhere else, and there were buyers in
Speaker 1: other parts of the world. Abashak, perhaps you could talk
Speaker 1: a little bit about where other parts of the world
Speaker 1: were essentially grabbing up some of this gas supply that
Speaker 1: wasn't coming to Europe.
Speaker 2: Yes, certainly. So we did see some of the Russian
Speaker 2: cargoes that were previously coming to Europe, they were being
Speaker 2: sent to the other markets around the world. So we
Speaker 2: did see some of the cargoes going to China, going
Speaker 2: to India. And one of the main reasons that cargoes
Speaker 2: were coming to these markets is because a few of
Speaker 2: these cargoes were available at a discounted price. So buyers
Speaker 2: were quite willing to take the Russian energy at the
Speaker 2: time when the global energy market is quite tight to
Speaker 2: their shows.
Speaker 1: And when you say at a discounted price, what are
Speaker 1: we talking about.
Speaker 2: So in terms of the prices, we usually do not
Speaker 2: have very good data, but based on the reports that
Speaker 2: we caught from the various media outlets and our own
Speaker 2: interaction with the market, some of the cargoes that were
Speaker 2: coming out from Russia, they were selling at least a
Speaker 2: ten percent discoune to the market price.
Speaker 1: And when you indicated earlier that there was one third
Speaker 1: less supply coming to parts of Europe, which now has
Speaker 1: found places elsewhere in the world at a discount. It
Speaker 1: wasn't all of the Eastern European gas that got shut down,
Speaker 1: it was a third. So that therefore and firs that
Speaker 1: there are existing pipelines that have continued to flow. Can
Speaker 1: you talk a little bit about where we currently stand
Speaker 1: in terms of what is available and what is not
Speaker 1: available and really where is Europe's gas coming from? Right now?
Speaker 3: You're right that Europe is got in gas not only
Speaker 3: from Russia, but there are others, for example, pipeline sources
Speaker 3: that are sending gas into Europe. For example, Norway, after
Speaker 3: LNG supply, is the second larger source of supply in
Speaker 3: the European mix, and that's been very helpful. Europe has
Speaker 3: been maximizing it production and sending quite a lot of
Speaker 3: gas last year in particular, that was around if I
Speaker 3: remember correctly, around ninety five bcm of gas in the
Speaker 3: previous gas here, so that is a big share to cover.
Speaker 3: And then apart from Norway, we have some r the
Speaker 3: pipelines for example coming from North Africa that's supply in Europe.
Speaker 3: And then there is also a pipeline coming from Azerbaijan
Speaker 3: via Top pipeline. So those supply sources are covering some
Speaker 3: share of the supply mix, but they are not as
Speaker 3: significant as for example, ler G which is the number
Speaker 3: one source in Norway, which is the number two source
Speaker 3: of supply, So Norway and ALLERGI they are covering in
Speaker 3: total roughly I would say, seventy percent of the total
Speaker 3: supply mix, which is quite a big share.
Speaker 1: So there's the supply sign. But then how about the
Speaker 1: demand dynamics. There was a lot of conversation around last
Speaker 1: year reducing the demand, and let's stay on Europe at
Speaker 1: the moment. Europe responded by having different targets to reduce
Speaker 1: their demand in a number of different measures across the content,
Speaker 1: some differing from country to country. Do we see demand
Speaker 1: staying suppressed this year or things going to bounce back
Speaker 1: and essentially, do those same targets continue to exist or
Speaker 1: you know, as you mentioned at the beginning, if we're
Speaker 1: close to one hundred percent in storage as essentially that
Speaker 1: concern over the demand side really reduced.
Speaker 3: That's that's a very good question. So last year, indeed,
Speaker 3: demand destruction or guest demand savings helped a lot to
Speaker 3: balance the market. And what we expect in our seasonal
Speaker 3: outlook that we just published on the eleventh of September.
Speaker 3: We expect demand to be still weak, around twelve percent
Speaker 3: below the five year average. And if we are looking
Speaker 3: into European demand, that is split into US three sectors.
Speaker 3: So the first one is residential and commercial demand, second
Speaker 3: sector will be a guest to power demand, and then
Speaker 3: there is also industrial demand. So I'll start with the
Speaker 3: residential and commercial demand since it's the biggest share of
Speaker 3: gas demand. Residential and commercial or as we call it
Speaker 3: in gas world LDZ demand local distribution zone demand will
Speaker 3: be unsurprisingly a key balanced item on the market as
Speaker 3: during the winter time. For example, residential and commercial demand
Speaker 3: accounts for about fifty five percent of the total demand,
Speaker 3: so it's quite a big chunk of demand that we
Speaker 3: are talking about. So in our forecast, we expect a
Speaker 3: slight recovery in the residential and commercial demand, bringing about
Speaker 3: six billion cubic meters of additional gas demand compared to
Speaker 3: the last year. The reason for that that is because
Speaker 3: we are seeing prices lower year and year, but they
Speaker 3: are still historically high, so that recovery is going to
Speaker 3: be limited and the wholesale lower wholesale prices will be
Speaker 3: offset by the end of the subsidy schemes in some countries.
Speaker 3: Another reason is why demand savings is going to be
Speaker 3: persistent as we head into the next winter is because
Speaker 3: there is also a share of the demand that has
Speaker 3: been displaced permanently due to for example, electrification of the
Speaker 3: heating demand or energy efficiency measures that customers implement it.
Speaker 3: And then there is also we don't we need to
Speaker 3: remember that there is a permanent shift in the consumer's
Speaker 3: behavior that was encouraged by the media campaign that we've
Speaker 3: seen last year. So those are the factors that are
Speaker 3: limiting the recovery in the residential and commercial demand. Now
Speaker 3: moving on to the industrial demand, we expect the similar
Speaker 3: in a way similar situation that rebound in the industrial
Speaker 3: gas demand is expected to be limited. Like I said,
Speaker 3: gas prices a year and year they are lower, however
Speaker 3: they are still historically higher, so that provides little incentive
Speaker 3: for the industry to ramp up gas demand. And then
Speaker 3: looking into the manufacturing demand, it is low and it
Speaker 3: is weak and a broader economic landscape remains not promising
Speaker 3: so far for the industry to ramp up the production.
Speaker 3: Looking into for example, in some country is like Germany,
Speaker 3: seeing the mark to decrease in the gas consumption in
Speaker 3: the industrial sector, and that's because the most energy intensive industries,
Speaker 3: they are seeing the reduction in their production output. And
Speaker 3: then for example, if we're looking into the sectoral split,
Speaker 3: then chemical sector was the one that saw a consistent
Speaker 3: reduction in the output. So those are the factors that
Speaker 3: are supporting the industrial demand to be persistently weak in
Speaker 3: the upcoming winter and most probably summer season as well.
Speaker 3: And finally, gas to power demand, we expect it to
Speaker 3: be higher for the upcoming winter. That is supported by
Speaker 3: the closure of lignite and nuclear plants in Germany. However,
Speaker 3: for the summer season, we expect gas for power generation
Speaker 3: to be near record low and that's supported with the
Speaker 3: increased solar generation capacities, so that seasonal difference between winter
Speaker 3: and summer is going to persist for the upcome in winter.
Speaker 3: So yeah, that's the overall picture for the demand. I
Speaker 3: know it's a long answer, but that's an important part
Speaker 3: of the balance well.
Speaker 1: And with liquefied natural gas, this is a truly global marketplace.
Speaker 1: So Abishak, can you comment on other parts of the
Speaker 1: world and what the demand is looking like there. Is
Speaker 1: it growing, is it staying roughly flat from last year.
Speaker 1: And I'm assuming, and maybe you can correct me on
Speaker 1: this one, but I'm assuming that those prices that were
Speaker 1: lower last year are perhaps less competitive this year. What's
Speaker 1: going on with both prices and then therefore demand in
Speaker 1: other parts of the world.
Speaker 2: Yeah, certainly so. In terms of the prices as compared
Speaker 2: to the last year, we are seeing lower prices. So
Speaker 2: for example, we saw price tom back in August September
Speaker 2: last year, but this year we haven't seen any big
Speaker 2: change in the market or any big thing happening in
Speaker 2: the market that can push the prices up. So prices
Speaker 2: are lower than last year in general, and what this
Speaker 2: means is that it is bringing.
Speaker 1: Wait, the prices this year are lower than last year,
Speaker 1: even given the last year visited to discount.
Speaker 2: Yes, wow, So in general throughout this year we have
Speaker 2: seen lower prices as are in an earlier mentioned that
Speaker 2: we have seen in the beginning of the year, we
Speaker 2: have seen mild winter. So what the mile winter did
Speaker 2: is that it reduced the heating demand and Europe was
Speaker 2: able to end the winter at a storage level which
Speaker 2: was considered quite healthy, quite higher than even the five
Speaker 2: year average levels. So what that did for the global
Speaker 2: allergy prices is that eurof did not need to bring
Speaker 2: in a lot of flexible cargoes to the various markets,
Speaker 2: and that's why more lngs available to different markets, and
Speaker 2: that's why the prices this year we have seen are
Speaker 2: lower than last year.
Speaker 1: Are there parts of Asia that you would consider to
Speaker 1: be growth markets where demand is increasing given that you've
Speaker 1: just established that prices are even lower this year than
Speaker 1: last year.
Speaker 2: Yes, So we expect demand to recover in South Asian
Speaker 2: markets and in Southeast Asian markets as well compared to
Speaker 2: the last year. And the main driver is the fact
Speaker 2: that there is going to be an increase in contracted
Speaker 2: allege deliveries and also comparatively higher sport purchases by various
Speaker 2: buyers in India, for example, in bangla and in Thailand
Speaker 2: because of the lower prices. So last winter, these economies
Speaker 2: suffered a lot as prices were unaffordable and we saw
Speaker 2: almost zero spot demand from India and Bangladesh in the
Speaker 2: fourth quarter last year. But this year we are expecting
Speaker 2: to see moderate level of spot buying from these countries
Speaker 2: because of the lower prices. We also expect India to
Speaker 2: get more contracted deliveries versus last winter when CEFE which
Speaker 2: stands for Securing Energy for Europe, so that's an x
Speaker 2: gas from unit which was taken over by German government
Speaker 2: to protect its energy security interest. So SEFE had a
Speaker 2: contract with India and due to non availability of cargoes,
Speaker 2: safe stopped the cargo deliveries to India last winter. But
Speaker 2: this year it has been able to restart the supply,
Speaker 2: so we expect that India is likely to get more
Speaker 2: contracted deliveries this year and this will result into higher
Speaker 2: LNG imports to India. On the Southeast Asia side, we
Speaker 2: think that Thailand's following production is likely to keep its
Speaker 2: national oil and Gas company BTIT active in the spot market.
Speaker 2: Other smaller markets such as Singapore is also going to
Speaker 2: see new contracts starting which will raise the deliver freeze.
Speaker 2: And we have also assumed higher demand in Indonesia because
Speaker 2: of the commissioning of a new LERG train there which
Speaker 2: will supply most of the LNG to the local market.
Speaker 1: Now, the way that we're structured here at PNF, we
Speaker 1: actually have someone covering each of these time zones, if
Speaker 1: you will, So the Americas are covered by a gas
Speaker 1: analyst and then we've got our European and then our
Speaker 1: Asia focused gas analysts on the show today. Now, without
Speaker 1: taking the words entirely out of your colleague, who cannot
Speaker 1: be here's mouth, what were some of the key highlights
Speaker 1: regarding what happened last year with LNG as it relates
Speaker 1: to the US. And then on from that, how do
Speaker 1: you expect the North American predominantly gas supply to impact
Speaker 1: this year's dynamics in Europe and in Asia.
Speaker 2: So last year what we saw is that a lot
Speaker 2: of the US cargoes that were previously coming to the
Speaker 2: North Asian markets. So when we see North Asia, we
Speaker 2: mostly refer to Japan, China and South Korea. So a
Speaker 2: lot of the US ALLERGI that was previously coming to
Speaker 2: these markets back in twenty twenty one, it was shifted
Speaker 2: towards zero. So there was a change in the global
Speaker 2: allergy trade flows from Asia towards zuro for the flexible
Speaker 2: allergy cargoes. So when we think about the US ALERGI,
Speaker 2: one of the main things to highlight is the fact
Speaker 2: that most of the US LNG is available on FOB basis,
Speaker 2: which is free on board basis, and what that means
Speaker 2: is that those cargoes are not restricted to go to
Speaker 2: a particular destination under some contractual obligations, and this enables
Speaker 2: the portfolio players the suppliers to supply those cargoes based
Speaker 2: on the end user or the end market prices. In
Speaker 2: last year, when Europe was really struggling to get the gas,
Speaker 2: prices in Europe were higher than Asia. So what happened
Speaker 2: is that a lot of the US allgi it ended
Speaker 2: up in Europe. And we have seen this trend continuing
Speaker 2: this year because, as Arena mentioned earlier, LNG is still
Speaker 2: one of the major gas sources to Europe this year
Speaker 2: and is going to be so in the coming years
Speaker 2: as well, So we do expect this will continue this
Speaker 2: year in terms of the overall LNG supply growth. Also,
Speaker 2: we are thinking that US is likely to lead the
Speaker 2: supply growth because we have assumed one of the major
Speaker 2: projects which was under outage last year is likely to
Speaker 2: be operational this winter because of the incremental volumes coming
Speaker 2: from that particular project, so that is a freeport project.
Speaker 2: We are expecting US is likely to lead the overall
Speaker 2: global LNGG supply.
Speaker 1: As you look ahead to the next half year, how
Speaker 1: closely are you watching the weather and essentially there could
Speaker 1: be extremes on either end. And can you explain how
Speaker 1: let's go with the extreme of a particularly cold weather
Speaker 1: for the northern hemisphere over the course of this upcoming winter,
Speaker 1: which sees much more of the natural gas that's currently
Speaker 1: stored being used. What is the potential worst case scenario.
Speaker 3: Yeah, So, as we are approach in the winter season,
Speaker 3: we are looking into the weather and daily basis, and
Speaker 3: that's quite an important risks for everyone to take into
Speaker 3: account during the winter season. So far, what we are
Speaker 3: seeing is that the predictions on the market is that
Speaker 3: it's going to be a mild start into the winter season,
Speaker 3: and we expect temperatures to be about normal throughout the
Speaker 3: October months. And then as we are looking into the
Speaker 3: entire winter again, the forecast is for this winter to
Speaker 3: be milder and wetter compared to the average one. So
Speaker 3: that gives some hope. But then if you're looking into,
Speaker 3: for example, European gas price spreads over time, if we
Speaker 3: are comparing front months with the first quarter of twenty
Speaker 3: twenty four, the market is in contango, meaning that contracts
Speaker 3: for later dates are more expensive compared to the spot
Speaker 3: once so that means that the market is pricing in
Speaker 3: those risks, and one of them could be a weather
Speaker 3: related So if we're seeing a particularly cold winter, that
Speaker 3: could displace quite a lot of gas from storages and
Speaker 3: that will challenge Europe in terms of how to go
Speaker 3: through the winter and then for the following summer how
Speaker 3: to restore that storage inventories.
Speaker 1: But as of right now, it's looking pretty mild. And
Speaker 1: then another question, and as somebody who hails from California
Speaker 1: and definitely knew when it was an El Nino year,
Speaker 1: is it too early for us to decide whether or
Speaker 1: not this is an El Nino year? And if it is,
Speaker 1: what does El Nino do to well, first of all
Speaker 1: the weather, but more importantly for this show natural Gas,
Speaker 1: I think.
Speaker 3: For this particular winter we are going to see in
Speaker 3: Europe the impact from El Nino is it Europe is
Speaker 3: going to be milder and wetter, which is a positive
Speaker 3: sign for Europe, meaning that we will be able to
Speaker 3: keep those storages at a reasonable level of fullness throught
Speaker 3: the winter and throughout the summer.
Speaker 1: And very simply put, El Nino is a warming of
Speaker 1: the Pacific, which essentially does change the weather all over
Speaker 1: the world, but it certainly impacts certain regions more than others.
Speaker 1: So Abashak living in a part of the world that
Speaker 1: actually it borders the Pacific Ocean, how does Anino impact
Speaker 1: the gas market in your part of the world.
Speaker 2: So in the North Asia, we have done some analysis
Speaker 2: using over CAAs demand models, and what we observe is
Speaker 2: that if we look at the historical data, if we
Speaker 2: look at the Alino ears, the gas demand in those
Speaker 2: particular years has been lower than the normal. So what
Speaker 2: this means for the gas demand for the North Asian
Speaker 2: markets is that if Alino happens this year, it is
Speaker 2: likely that North Asia will also need less gas for
Speaker 2: the power sector, for the city gas sector, and this
Speaker 2: may actually help the overall market in terms of prices.
Speaker 2: So it would be a good news for the europe
Speaker 2: But other thing I wanted to highlight about Alino is
Speaker 2: that besides North Asia, it also impacts other parts of
Speaker 2: the world. So, for example, it can bring dry weather
Speaker 2: in South America and this year we have observed low
Speaker 2: water levels in the lake that feeds the Panama Canal,
Speaker 2: and because of the low water levels, it has been
Speaker 2: difficult for the ships to cross the Panama Canal. And
Speaker 2: what this has done is that the ships which are
Speaker 2: coming from US, let's say they needed to cross the
Speaker 2: Panama Canal to go to let's say Japan or China,
Speaker 2: they are taking a longer route via Swiss Canal or
Speaker 2: another direct route. So that is creating bottleneck in terms
Speaker 2: of the shipping lanes, and this may actually result into
Speaker 2: price volatility. So Alino, we think, is a bag of
Speaker 2: mixed news. It can reduce the customer, but it can
Speaker 2: also increase the difficulties in bringing the cargoes to issue.
Speaker 1: And Abishek you highlight that not only are you and
Speaker 1: your team looking at current weather patterns, but you rely
Speaker 1: a lot on historical weather patterns. My question really comes
Speaker 1: to climate change and whether or not some of the
Speaker 1: historical weather information that you rely upon, whether or not
Speaker 1: you're looking at it differently as we're starting to see
Speaker 1: some of the changes that are actually part of climate
Speaker 1: change come to fruition now and how much that really well,
Speaker 1: how difficult that makes your modeling.
Speaker 2: That's a very good question. The short answer is it
Speaker 2: makes the model being extremely difficult because in order to
Speaker 2: analyze the impact of al Nino, for example, while accounting
Speaker 2: for the global warming, we really need to be very
Speaker 2: careful about the number of historical years that we are
Speaker 2: taking into account in our model. So just to give
Speaker 2: you an example, if we take into account last ten
Speaker 2: years of weather data, Alino appears to be reducing the
Speaker 2: cast demand, or if we take last thirty years of
Speaker 2: father data, al Nino years also have higher gas demand
Speaker 2: in some parts of the world. So what this means
Speaker 2: is that moving from last thirty years to last ten years,
Speaker 2: it is possible that global warming may be impacting the
Speaker 2: cast demand in a more significant way as compared to Alnino.
Speaker 2: So for us, identifying the impact of Alino versus global
Speaker 2: arming is an extremely challenging task, and hence we have
Speaker 2: to be really careful about the number of historical years
Speaker 2: we take into account.
Speaker 1: So just pivoting a bit back to well llenng in
Speaker 1: this year specifically and actually onto geopolitics, Assuming that the
Speaker 1: Russian invasion of Ukraine continues this year, what does that
Speaker 1: mean for gas markets? And should things worsen, which I
Speaker 1: certainly hope that they will not, what does that mean
Speaker 1: for the global gas market.
Speaker 3: So so far, Russian flows have been stable via Ukrainian
Speaker 3: route and as we all know that Russian gas transit
Speaker 3: contract with Ukraine is expiring in the end of twenty
Speaker 3: twenty four, so I'm sure that will be an interesting
Speaker 3: topic for the discussion on the market, despite the fact
Speaker 3: that Russia is not supplying a significant amount of gas
Speaker 3: as it used to do a year or two years ago. However,
Speaker 3: as we are talking about the Ukrainian route, I think
Speaker 3: it's important to bring in the fact that European companies
Speaker 3: started sending gas into Ukrainian storages and so far what
Speaker 3: we have seen is that they started sending it in
Speaker 3: July and then ramping up in August. So far they
Speaker 3: accumulated around two billion cubic meters of gas in Ukrainian
Speaker 3: storages under so called customs ware house regime. So custom
Speaker 3: ware house means that European companies can bring gas into
Speaker 3: Ukraine and then store it for up to three years
Speaker 3: without paying any customs or text duties and bring it
Speaker 3: back to Europe. So having that two BCM in Ukrainian
Speaker 3: storages gives us a bit of a proxy in terms
Speaker 3: of how much European companies are utilizing Ukrainian gas and
Speaker 3: how much of that gas can be used as a buffer,
Speaker 3: for example, in the upcome in winter. If they decide
Speaker 3: to bring that gas back into Europe. However, it's an
Speaker 3: interesting question to see what's going to happen with that gas.
Speaker 3: Is it going to be brought back into Europe or
Speaker 3: it will be sold on the domestic market in Ukraine
Speaker 3: as we've seen previously in the year twenty twenty one,
Speaker 3: or is it going to be carried over for later
Speaker 3: for maybe next winter season.
Speaker 1: So you've established that there is a buffer, and one
Speaker 1: of the lessons that I learned from last year is
Speaker 1: an incredible amount of flexibility in the global LNG gas trade.
Speaker 1: So how flexible would you say the LNG market is
Speaker 1: in filling in any sort of issues that may arise
Speaker 1: on the supply side.
Speaker 3: That's a good question. So Europe, as I mentioned before,
Speaker 3: is now dependent on spot llergy market and as we know,
Speaker 3: it's not an unlimited supply, So there is a pool
Speaker 3: of global energy supply that is not tied up into
Speaker 3: a contract and Europe would need to compete with other
Speaker 3: buyers to get or to win that gas. So far,
Speaker 3: in our seasonal outlook, we expect Europe to attract around
Speaker 3: fifty or fifty two percent of that global spot energy,
Speaker 3: which is quite a big sure, we are talking about
Speaker 3: in million metric tons, that will be around fifty five
Speaker 3: million metric tons, which is quite a significant amount, and
Speaker 3: that is about a quarter of the total supply mix
Speaker 3: in Europe. So, as we can see, Europe is quite
Speaker 3: dependent on that spot energy and obviously to attract that
Speaker 3: gas it has to compete with Asia for example, so
Speaker 3: we are expecting to see that Europe would need to
Speaker 3: price accordingly to win that gas. So far as we
Speaker 3: are looking into the differentials between Asia and Europe, Asia
Speaker 3: is at premium. However, if we are looking into the
Speaker 3: ship and differential, that premium might be eaten up by
Speaker 3: those transportation costs. However, it would be interesting to see
Speaker 3: how the situation is unfolding and depending on where the
Speaker 3: prices are, who will get that spot allergy and.
Speaker 1: You noted that this is not an infinite supply which
Speaker 1: then leads me to wonder are there increases on the
Speaker 1: supply side presently and are there new projects that we
Speaker 1: should be aware of.
Speaker 3: So, like I said, Europe is now energy spot dependent,
Speaker 3: so it has to increase its regassification capacity, and looking
Speaker 3: into the upcoming year, we expect the regasification capacity across
Speaker 3: Europe to increase by around one hundred and ten mcm
Speaker 3: million cubic meters per day, So that's compared to last
Speaker 3: year we had in total four hundred Now it's going
Speaker 3: to be around five hundred thirty million cubic meters per day.
Speaker 3: The most growth is expected to come from Germany, followed
Speaker 3: by Belgium, France and Italy. So Europe needs to increase
Speaker 3: that capacity in order to attract a higher level or
Speaker 3: higher share of that flexible Llerenchy and I'll pass on
Speaker 3: to Abishak to comment on the global energy supply increase.
Speaker 2: So in terms of the LNG supply, so besides the
Speaker 2: growth coming from the US, we are expecting startup of
Speaker 2: new facilities across the Atlantic basin and the Pacific basin.
Speaker 2: Some of the projects, for example include Arctic Energy two
Speaker 2: in Russia. We have Altamira fast Lergy in Mexico, tangu
Speaker 2: Train three in Indonesia. Then we also have projects in Mauritiana,
Speaker 2: Senegal and in the Republic of Congo. So all of
Speaker 2: these projects are going to add new supply to the
Speaker 2: global allergy balances. But I would also like to highlight
Speaker 2: some of the possible risks to the growth of the supply.
Speaker 2: We have seen a number of projects struggling with the
Speaker 2: feedcare supply. So these are the operational projects in Nigeria
Speaker 2: and Egypt. There could also be some risk from the
Speaker 2: possible hurricanes in the US Gulf Coast where plant operation
Speaker 2: may be impacted from bad weather. Besides this, one of
Speaker 2: the key risks to the global energy balances next year
Speaker 2: may come from continued sanctions or additional sanctions on arctical
Speaker 2: Eergy two. So Optical Eergy two is adding quite a
Speaker 2: lot of volumes to our balances. So this is the
Speaker 2: project in Russia and this is going to commission its
Speaker 2: first train by January next year if there are more
Speaker 2: delays in the commissioning of this project, so this is
Speaker 2: going to be a test for NOATECH whether they can
Speaker 2: commission a new project and operate a new project. So
Speaker 2: before the Western companies were involved in the project, they
Speaker 2: used to help Russia in order to operate these projects.
Speaker 2: But because of the sanctions, a lot of its Western
Speaker 2: partners have left the project and so any delays in
Speaker 2: the commissioning of up to two is going to impact
Speaker 2: the global allerge balances in a very significant way next year.
Speaker 1: So as someone who has to think about a title
Speaker 1: for this show, I know you also need to think
Speaker 1: about titles when you're writing your reports. So European Gas
Speaker 1: Winter Outlook and Global Winter Outlook twenty twenty three to
Speaker 1: twenty twenty four certainly tells everybody what they're reading when
Speaker 1: they're looking in your research, but you give them a
Speaker 1: little bit of a second title to kind of let
Speaker 1: everybody know what. Well, I guess what the headline is.
Speaker 1: So for the European Gas Winter Outlook it says healthy
Speaker 1: but fragile, and for the Global LNG Winter Outlook, it
Speaker 1: says caution amid supply risk. So it seems like we're
Speaker 1: cautiously optimistic am by getting the right tone there, because
Speaker 1: I can understand sitting down and not wanting to make
Speaker 1: a headline that essentially says, hey, everybody, it's going to
Speaker 1: be fine. But reading the subcontext, that does seem to
Speaker 1: be where we're looking at next year. And so what
Speaker 1: did you mean by these titles? What is healthy but
Speaker 1: fragile and what is caution amid supply risk?
Speaker 3: I can start with European one, so we called it
Speaker 3: halsibat fragile because European gas balance now is looking housier.
Speaker 3: European storage is ninety five percent full, which gives hope
Speaker 3: for the week. However, as we've seen with the past
Speaker 3: recent events that European gas market remains sensitive to any
Speaker 3: supply risks. So for example, when there was talks around
Speaker 3: Australian strikes, then the market responded with high prices. Extended
Speaker 3: Norwegian maintenance also a triggered high gas prices. So that
Speaker 3: shows us that despite the fact that gas balance looks healthy,
Speaker 3: we have plenty of storage levels, Europe is still sensitive
Speaker 3: to any risks of the supply disruption. So that's why
Speaker 3: we called it halcy butt fragile.
Speaker 1: And for anybody who's never written a title, I can
Speaker 1: tell you it's quite difficult to try and figure out
Speaker 1: the entire message you want to send in three to
Speaker 1: four words. So abashak over to you on the Global
Speaker 1: LNG Outlook title So caution emits supply risk. What was
Speaker 1: it that you were thinking when you were selecting these
Speaker 1: four words to really encapsulate your thoughts? Why did you
Speaker 1: choose them?
Speaker 2: So the recently chose the word caution is because we
Speaker 2: do see lots of uncertainties in the North Asian markets
Speaker 2: on the land supply side and also on the weather side.
Speaker 2: So for example, in the case of China, if China
Speaker 2: receives lower than expected pipeline imports from Central Asia, then
Speaker 2: it can increase lenty demand from China. Other risk is
Speaker 2: a stronger economic growth scenario for China and likewise for
Speaker 2: Japan and South Korea. Lower than expected nuclear generation may
Speaker 2: also increase the demand for spodcard. So in summary, we
Speaker 2: do see a lot of uncertainties across the different markets
Speaker 2: on the supply side and on the weather side, and
Speaker 2: that's why we did one to say that we are
Speaker 2: cautiously optimistic for.
Speaker 1: The coming inter arena and Abishek thank you very much
Speaker 1: for joining today.
Speaker 3: Thank you, Dana, Thank you Dana.
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