Longer-term LNG contracts could help ensure supply security in Europe despite growing concerns surrounding decarbonization targets, while price volatility in the LNG sector is also expected to endure, panelists at the World LNG Summit in Athens, Greece, said Nov. 29.
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Register NowThe panel agreed that while LNG prices could moderate in the coming years, volatility is expected to remain. This will continue to pose challenges to buyers as LNG producers battle with increased liquefaction, shipping and decarbonization costs.
"The LNG industry needs to continue to grow," Shell Energy's Executive Vice President Steve Hill said. "The market projections for supply growth are around 200 million mt from 2025-2040. That requires investment, regulatory clarity, and long-term contracts that underpin investment."
Europe continues to pivot towards LNG, and in 2022 LNG imports to Europe rose 60% from 2021. So far, 2023 import levels are on track to outpace 2022.
However, the foundations of supply security are embedded in longer-term supply commitments, and creating a level of flexibility that adheres to the EU's decarbonization pledges poses an even deeper challenge for European LNG market participants, panelists said.
"Volatility and uncertainty are set to become a big challenge," BP's Vice President of Global LNG Trading and Origination Jonty Shepard added. "For us as portfolio players, the challenges are changing, and so is the appetite for risk. We're seeing the need for a lot more flexibility within those long-term contract commitments."
Correspondingly, offering buyers more optionality in contract negotiations could benefit producers as end-users continue to value natural gas as a transitional fuel. However, the panelists conceded that as decarbonization efforts mount, natural gas use will be subject to change.
"Security of supply will shield global consumers against volatility, but LNG is a market where 10% is price-sensitive, and another 10% is sensitive to seasonality," ADNOC's Senior Vice President of Marketing Rashid Al Mazrouei said. "Volatility is inherent in LNG, more than gas."
The discussion follows a string of long-term LNG contracts signed by European companies last month, with Shell, TotalEnergies and Eni all signing 27-year contracts with QatarEnergy for LNG supply, which could see LNG shipped to Europe through to 2053.
Platts, part of S&P Global Commodity Insights, assessed the DES Northwest Europe LNG Marker for January at $13.572/MMBtu on Nov. 28, and assessed the DES Mediterranean LNG Marker at $13.472/MMBtu on the same day.
Supply concentration risks
Panelists also noted that supply concentration risks across LNG's supply landscape could pose further challenges for the industry moving forward, particularly as Europe increases its reliance on the fuel.
Both the US and the Middle East are expected to emerge as dominant supply sources in the coming years, with over half of new LNG projects expected to come online between 2025-2027 located in the US and Qatar, according to the International Energy Agency.
"The US has been a great example of a reliable supplier of LNG in recent years, but a lot of the supply comes out of the south of the country, and we've seen already that fog and hurricanes have impacted production," Shepard said.
However, the evolution of LNG's global supply landscape could, in time, act as a balancing mechanism against supply concentration, panelists said, as producers continue to diversify their supply offerings.
"I think the market is big enough to be able to absorb a few big players," Al Mazrouei said. "Each supplier will have its unique offerings; the US on incoterms, or Australia on geographical location close to markets, for example. Therefore I don't see concentration of supply posing a concern."