It should always be remembered that LNG is part of a global market in a way that ‘ordinary’ natural gas is not.
Liquefied natural gas (LNG) may (as I’ve noted before) represent one part of the way in which Europe extricates itself from its current energy mess, but it should always be remembered that LNG (which is transported over long distances in tankers) is part of a global market in a way that “ordinary” natural gas is not.
In particular, competition for LNG between Asian and European buyers has been intense this year. That this is only likely to intensify is no surprise, but this next bit is an unwelcome piece of news (via Bloomberg):
Malaysia will curb liquefied natural gas shipments to Japan this winter after a pipeline leak disrupted exports, another hit to already strained global supplies of the power-station fuel.
Petroliam Nasional Bhd. has made a request to reduce contracted deliveries to several Japanese customers through the year-end, according to traders with knowledge of the matter. Petronas said Wednesday that it declared force majeure on supply to its LNG export facility due to a leak on Sabah-Sarawak Gas Pipeline on Sept. 21.
A landslide last month likely caused damage to the conduit, although it may be repaired before the end of the year, according to traders. Roughly 10 LNG shipments will be lost over the next three months, they estimated. Malaysia delivered 51 cargoes to Japan from October through December last year, according to ship-tracking data. Japan is the biggest buyer of Malaysian LNG.
The reduction in scheduled shipments threatens to intensify a scramble in Asia to find replacement cargoes, boosting competition with Europe for scarce supply. Global gas prices surged to a record earlier this year after Russia’s invasion of Ukraine upended energy markets…
Japan, which imports most of its energy needs, is grappling with a worsening shortfall, and narrowly avoided blackouts earlier this year. The government is expected to call on residents and businesses to conserve power this winter.
Under the circumstances, it’s worth noting this report from Bloomberg earlier this year, about three weeks before the Russians invaded Ukraine:
Japan will make sure its own energy demands are met before aiding Europe with shipments of liquefied natural gas in the event conflict erupts over Ukraine, according to the nation’s trade minister.
The comments come amid fears that European allies may run short of energy should Russia invade Ukraine, an attack Russian President Vladimir Putin has repeatedly denied he’s planning. The Biden administration and European governments have reached out to Japan, as well as other nations in Asia, about diverting gas shipments to Europe, Bloomberg reported on Thursday.
Meanwhile, Europeans are busy expanding their ability to import LNG. In a recent piece on Europe’s energy mess, I noted how this has led to quite a shift in policy in Germany:
Germany has now chartered five floating terminals to import liquefied natural gas (LNG), two of which should be ready this year. Previously, the country had none, floating or fixed. With so much gas coming from its reliable Russian partners, why bother?
Floating terminals (or, to describe them more technically, floating storage-regasification units (FSRUs)), are a quick solution for a country with no fixed terminals. As a rule of thumb, they can be up and running within one to three years, whereas a fixed terminal can take four to six years. Interestingly, Germany also has plans for at least two fixed terminals, something which suggests Berlin believes that its need for (non-Russian) gas is not going to be going away any time soon.
The Financial Times (September 20) (my emphasis added):
In July, the European Parliament made a remarkable decision: it approved a law designating natural gas as a sustainable energy source.
Until a couple of years ago, the EU wanted to remove gas from the energy mix as soon as possible. The European Investment Bank had sought to cut off financing of natural gas infrastructure projects — from pipelines to liquefied natural gas terminals.
But Russia’s invasion of Ukraine has changed perceptions entirely. Instead of potentially stranding natural gas assets in the decade ahead, policymakers have shifted their attention to how they can keep the lights on and homes warm this winter. Tens of billions of euros of investment in gas projects will follow.
It’s worth noting that reference to “stranded assets.” One of the justifications for ESG, and the involvement of the SEC and central banks in climate policy has been the risk supposedly posed by assets left “stranded” by decarbonization. There are a lot of fundamental economic problems with that idea. But even if we put them to one side, here we have an example of how the reaction to world events is now going to be driving inflows of fresh money into assets that would, until recently, have been considered — at least by climate policymakers — as candidates for redundancy, and at a time, thankfully, when the technology and the know-how to do so still exists.
Put another way, markets have shown their capacity to react to events. Now imagine if all this had happened in, say, another five years in a timeline in which regulators and their ESG praetorians had had their way. . . .