The global LNG market was influenced by some unprecedented factors in 2022. Europe significantly grew their LNG imports driving LNG prices to astounding highs. U.S. emerged as the top exporter in spite of an emergency shutdown at Freeport LNG. High shipping rates also plagued LNG markets along with limited supply and growing sustainability pressures. All of these will fuel LNG market volatility in 2023. Key trends to look out for include the following:
Economic slowdown Global LNG demand is set to rise by 3.5% to 4.5% to 390-420 mtpa in 2023
Global quarterly LNG imports averaged around 93 million tons per annum (mtpa) in 2022 and expanded by nearly 5% to 6% year-on-year. We expect growth in 2023 but not at the same rate as seen over the past year. Similar to the trend seen in 2022, global LNG demand in 2023 will be heavily impacted by limited Russian gas imports into Europe, along with a sustained shift to reliance on LNG in Europe.
Europe’s 2023 LNG demand will surpass demand in 2022 driving both prices and spot trading
European pipeline gas imports from Russia which made up 31% of overall gas supply in 2021 were reduced to only 6% in the last quarter of 2022. As a result, LNG imports through November amounted to 83 mtpa in 2022 compared to nearly 42 mtpa during the same period in 2021. Europe is expected to grow its LNG imports by an additional 5 mtpa in 2023. Increased reliance on LNG in Europe made it the preferred market and price-maker for spot LNG deliveries and Asian LNG consumption fell in 2022 – a trend that we expect to persist in 2023.
LNG prices will remain high in 2023 due to the Russia-Ukraine war
While this winter’s natural gas supply was sufficient for Europe due to milder temperatures leading to reduced heating needs, climate experts warn that the next winter’s demand could be much higher. Additionally, EU’s mandate on maintaining storage levels at 90% will drive LNG imports in Europe in 2023. Spot prices in Europe averaged $41 per million British thermal units (MMBtu) in 2022 and new supply from the U.S., Africa, and Qatar will take time as will transition to other sources of energy. As a result, LNG prices are likely to decrease only after 2025.
Limited LNG import capacity will lead to a volatile European gas market despite new infrastructure
The European Union (EU) and the U.K. combined are set to increase their LNG import capacity by 27% or 39 mtpa compared to 2021 by the end of 2023. However, the increased LNG import capacity will not fully offset the drop in piped gas supply from Russia, resulting in supply insecurity and volatility in the market.
China’s LNG demand is set to grow following COVID-19, but will not recover altogether
In 2022, China’s LNG imports amounted to around 48 mtpa, which is significantly lower than in previous years. The loss in demand was driven by high LNG prices, demand destruction in the transportation, industrial, and power sectors, a weakened economy due to COVID-19 restrictions, and higher use of renewable energy and coal for power generation. China’s LNG imports in 2023 are expected to grow to 72 mtpa. While the economy is projected to strengthen with easing COVID-19 restrictions, LNG demand will not be as high as pre-COVID levels due to increased reliance on renewable energy, coal, and Russian pipeline gas.
No new U.S. export capacity is expected to come online in 2023 although Freeport LNG will restart
The U.S. is not expected to add any new LNG export capacity in 2023. Cheniere Sabine Pass train 6 (4.5 mtpa) and Calcasieu Pass Phase 1 (10.0 mtpa) both came online in 2022 and Venture Global’s Plaquemines Parish LNG Phase 1 (10.0 mtpa) and ExxonMobil-Qatar Energy’s Golden Pass LNG are not expected to come online until 2024. However, once Freeport LNG comes back online in February it is expected to support higher European demand in 2023.
Continued natural gas production growth in the U.S. will moderate Henry Hub gas prices
U.S. natural gas production will grow to a little over 100 billion cubic feet per day (bcfd) in 2023 from 98 bcfd in 2022. This will be enough to meet growing domestic as well as LNG export demand moderating Henry Hub prices to $4.90 per MMBtu in 2023, lower than $6.42 per MMBtu in 2022.
Demand spike and increased trade have not shifted focus away from low-carbon LNG
In the U.S., efforts are underway to cut emissions from natural gas production and the volume of gas certified as low-carbon increased almost 100 times in 2022. LNG exporters have also signed contracts with suppliers of certified and responsibly produced natural gas. Moreover, major U.S. exporters including Cheniere Energy, NextDecade, and Sempra Energy are planning to add carbon capture and storage (CCS) to their terminals.
LNG shipping rates will likely remain high during the first half of 2023
LNG shipping rates at the end of 2022 were as high as six times compared to the beginning of 2022 reaching $500,000 per charter. LNG shipping rates as well as commercial cargo rates are expected to remain high through the first half of 2023 due to growing pressure on LNG. Although higher rates have been experienced during winter in the past, increased dependence of Europe on LNG and growing spot LNG trade by China to meet its demand have resulted in unprecedented highs in LNG charter rates.
Emerging economies will struggle to replace expensive LNG
A recent dip in LNG prices due to a warmer winter in Europe did provide some relief to LNG importers in Asia. But prices remain high at almost twice the previous five-year average and are expected to remain elevated through 2023 forcing emerging economies to find options to replace expensive LNG. For instance, key LNG importers in Asia such as India and the Philippines have announced higher targets for the share of renewable energy to limit dependence on LNG.
Danya Maree and Panuswee Dwivedi
