Offshore Energies Magazine - Issue 55 Spring 2023

2022: a pivotal year for the global gas market

Europe became the premium gas market last year and its industrial competitiveness dipped, reminding politicians of the need for diverse energy supplies.

T he repercussions from Russia’s invasion of Ukraine last year rapidly spread far beyond Europe’s concerns for security and corporate write-downs of upstream investments, substantial though they have been. Indeed, according to Shell’s LNG Outlook, 2022 "can go down as the year that reshaped global energy markets." In an interview in The Times March 4, the company's CEO Wael Sawan highlighted the fragility of the oil and gas markets. Russia's state-controlled pipeline gas export monopoly Gazprom stopped using the Yamal Europe pipeline through Poland in May; and the twin Nord Stream pipelines were mostly destroyed in the summer. The identity of the saboteurs is still a mystery. By September, only the Ukraine route (on reduced rations) and the two pipelines under the Black Sea to Turkey were running. Russian pipeline gas exports to the European Union fell by 78bn m³ in 2022 compared with 2021; but the ramifications were felt further afield. At the low end, Azerbaijan sold an additional 3bn m³, thanks to the Southern Gas Corridor pipeline crossing Turkey and Greece. And at the high end, US LNG deliv eries totalled 25bn m³ in the second half of the year – a lot more than Russia's pipeline sales for that period. Against this background, several majors have changed tack on their plans to offload hydrocarbons. Shell has sold assets faster than expected in pursuit of its decarbonisation plan. But Sawan hinted that he might now, in view of the delicate supply-demand bal ance, be reconsidering any further disposals. High prices are not healthy for anyone, "in particular, consumers," he said. Further guidance on output will come in June, at the company's capital markets day, he said. In its energy scenarios report, the other UK major, BP, said the Russia-Ukraine war "is likely to have a per sistent effect on the future path of the global energy system, increasing the focus on energy security, weak ening economic growth, and changing the mix of ener gy supplies." Its scenarios assume a "persistent reduc

tion in Russian exports of hydrocarbons" as sanctions restrict its access to technology and credit. BP has also dropped its earlier plan to cut output: its 40% output cut target for 2030 has fallen to 25%, with an aggres sive plan for new production – especially from fields that can be brought on stream fast. LNG sellers capitalise on EU demand The war led, among other things, to a 60% year-on year increase – 45mn metric tonnnes – in the volume of LNG coming to Europe. Much came to the UK ( see box ) and much also was redirected from Asia, where China’s manufacturing sector slumped, owing to Covid-19 controls. As a result of the lock-down measures – unlikely to be repeated in the event of future outbreaks – China took very few spot cargoes relative to previous years. Instead it relied on long-term contracts for all but 3mn tonnes of its LNG, down from 26mn tonnes from the spot market the year before. Latin America and some regions of south Asia also took less, year on year, owing to recovering hydro reserves in the former and high prices in the latter case: coal was cheaper. European gas demand was down 13% in the European Union, owing to mild weather – like Covid-19 in China, this was beyond Europe’s control – and fuel switching, with coal as the main beneficiary of that. Some industries even turned off their plant altogether, saving the sector 25bn m³. This raises serious questions about the competitiveness of European manufacturing in the long term, where feedstock prices are so much higher than in the US. Low rainfall on the continent and poor nuclear performance in France also had an impact on non fossil fuel supplies, forcing more buyers to turn to gas. Still, Europe had exceptionally high storage inventories by the time withdrawals began. Between August 2022 and January 2023, gas consumption fell 19.3% compared with the five-year average gas consumption for the same months. The

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