Gas prices began the year at a high from the cold 2021-2022 winter, already at US$38/MMBtu in December 2021. January and February saw declining prices as the northern hemisphere winter calmed and fell to a still very high US$25/MMBtu in Asia, but for the first time European gas pushed to a premium over Asian LNG prices.

With Russia’s invasion of Ukraine in late February, energy markets panicked, with European gas prices immediately spiking to US$42/MMBtu in March and US$37/MMBtu in Asia. As sanctions were announced and implemented, prices stabilised at around US$30/MMBtu for the June quarter, 3.5 times the price for the June quarter of 2021.

The huge price increase began to see serious stress to energy and electricity suppliers globally, with utility companies facing bankruptcy. Bailouts or government ownership stake increases (with financial support attached) were announced for several companies with values into the billions. Bailouts for Germany’s Uniper, will cost the government an estimated US$53bn.

The September quarter saw all-time record prices for LNG, averaging US$53/MMBtu for the quarter and a spike price of over US$88/MMBtu in late August, over ten times the average September-quarter price for 2021.

The panic in August was caused by a full shutdown of the Nord Stream 1 pipeline, nominally due to maintenance issues, fuelling fears of insufficient gas supply for the 2022-23 winter. The market calmed somewhat in September, but prices were still at notable highs, over US$50/MMBtu.

In the December quarter, prices have moderated, averaging US$37/MMBtu in Europe. The final quarter of the year has seen a significant arbitrage between Europe and Asia, with as low Chinese demand and secure contracts keep the need for spot prices in the region low.

This arbitrage is expected to close as Asian demand increases, pushing the Asian Composite LNG price back up to a US$3-4/MMBtu discount to Europe, away from a peak of US$20/MMBtu in August and US$13/MMBtu in November.

Belligerence from Russia

Worries over Russia’s gas supply into Europe proved well-founded after a 75% cut to gas flows through the Nord Stream 1 pipeline in June as a reaction to strong sanctions placed on Russia by Western nations. Gas supply fell from 170mcmpd to around 40mcmpd, followed up with more cuts to 20mcmpd in July, a full shutdown in August, and then permanently disabled by explosions in late September.

Ukraine’s gas transit network usage has been equally reduced by the war, with Russian supply to the pipeline cut to 17% of its maximum capacity (42.4mcmpd).

Full cut-offs of gas exports have been issued to the Netherlands, Italy, Finland, Austria, Latvia, Poland and Bulgaria, largely as a result of the sanctions placed on Russia by those nations. Gazprom’s exports fell over 40% to 87bcm for the first nine months of the year.

All of these gas supply cuts, both complete and incomplete, set the stage for a painful September quarter as Europe pushed hard to refill its gas stocks – at record prices. Europe has been forced to rapidly rearrange its supply to intake LNG, with importers France, the Netherlands, the UK, Greece and Italy pushing import rates to over 100% of their facilities’ nameplate capacities over first nine months of the year. Spain also saw major increases, with LNG imports surging 114% in July due to power demand.

In the first nine month of the year, LNG imports in Europe ballooned 65% to 95Mt. Europe’s share of global imports grew from 21% of global imports in Jan-Sep 2021 to 32% in 2022.

The sanctions on Russia caused a rapid and devastating withdrawal of Western energy, financing and technical companies from Russia. BP, Shell, TotalEnergies and Exxon all noted writedowns in the billions of dollars, in BP’s case over US$25bn, from withdrawal from shares in Russian companies. Russia retaliated by seizing assets co-owned by western partners, such as Sakhalin-II LNG.

While Sakhalin-II LNG has ultimately retained its Japanese investors Mitsui and Mitsubishi, but Shell’s 27.5% US$4bn stake has been essentially handed to Novatek. At Arctic LNG-2, TotalEnergies’ withdrawal has crippled financing at the developing project and the withdrawal of western engineering and technical companies has left the project’s second and third trains in dire straits, delayed for years.

Established and near-complete facilities have seen much less impact to their operations, operating largely as normal. Sanctions only minimally impacted the LNG trade, though Russian LNG shipped to Europe via China re-exports late in the year became a common occurrence until late October, with total Russian LNG re-exported as ‘Chinese LNG’ estimated at 7Mt. The practice ultimately ended when China reopened most of its Covid-19 lockdowns and ceasing reexports to fill its own gas storage.

Rearranging LNG Supply Lines

The year opened in a shortage, with concerns over storage levels for the 2021-22 winter already pushing prices high. The startups of the 5Mtpa Corpus Christi Stage 3, 10Mtpa Calcasieu Pass LNG and restart of Shell’s 3.4Mtpa Prelude in the first quarter helped to reduce the shortage. High hopes were held for the startup of the Nord Stream 2 pipeline, potentially supplying 55bcmpa into Germany, but with the invasion of Ukraine the pipeline never received approval and any positive potential was sacrificed on the altar of European solidarity.

The increase in European consumption caused by the shortage of Russian pipeline gas has devoured all available LNG spot cargos, shorthanded poorer developing nations like Pakistan, and has only been largely successful due to lockdowns in China doing serious damage to power demand from industry there, Chinese LNG imports having fallen 20% year-on-year.

The additional LNG supply has come from the US – an additional 35Mt of US LNG will be sold to European customers this year. This support has been impeded by a fire incident at the 15Mtpa Freeport LNG in mid-June, causing a shutdown at the facility for safety reasons that has it still shut down at the time of writing.

Nigeria LNG and Malaysia’s MLNG Train 2 both declared force majeure in October, NLNG due to flooding at its gas suppliers and MLNG due to a leak in its undersea pipeline caused by soil shifting. Both issues are likely to take several more months to resolve.

The shift in LNG demand has left developing nations bereft of available cheap energy. Pakistan in particular has struggled to obtain LNG imports in favour of wealthier nations who can afford to pay the expensive spot prices. Several of the nation’s tenders this year have failed to attract any bids, leaving the country in a gas shortage.

Other developing nations have continued to invest into LNG terminals in the hopes that prices will moderate as the energy transition and renewables take centre stage in Europe and east Asia. Vietnam and the Philippines are both investing into gas import terminals, intending to grow energy accessibility even at high cost.

The Future from 2022

The failure of European leaders to anticipate Russia’s manipulation of their energy dependence has already begun shaping attitudes towards future-proofing energy supply and ensuring security.

The German government began investment into LNG import terminals less than two months after the invasion of Ukraine, and now has plans for five FSRU import terminals and two onshore terminals, with an additional FSRU run privately. The nation has moved to secure itself at an initial US$5.5bn cost, from zero import capacity in 2021 to over 30Mtpa import capacity at the end of 2026, replacing over 85% of the Nord Stream pipeline’s capacity.

Likewise, over 15Mtpa of additional FSRU or onshore import terminals have been proposed or are beginning implementation in Greece, Albania, Italy, Croatia and Lithuania. Combined with the proposed Barcelona-Marseilles pipeline to assist throughput from Spain, the establishment of all these European terminals will make LNG capacity less of a concern than the global LNG supply in the coming years.