LNG market will return to rationality

In 2022, liquefied natural gas (LNG), which experienced a panic price surge and collapse, was the most concerned commodity. However, in 2023, under various factors, the LNG price surge similar to that in 2022 should not be repeated, and the entire market will return to rationality.

At present, the warmest winter in Western Europe is the biggest factor driving the LNG market to return to rationality. After a much milder winter than expected in Western Europe, the local LNG reserve has always remained at a super-high level, and the local and even global LNG prices have declined immediately. At present, the spot price of LNG in Asia has dropped by nearly 67% from the record high set in August last year. According to the data of Luft, the current spot price of LNG in Asia is about 23 US dollars/million British thermal units, which has dropped by about 32% since the beginning of December 2022. Although it is still more than twice the level in the middle of 2021, this has greatly improved compared with the situation in 2022. It can be said that the panic factor has been eliminated. At present, the natural gas inventory in Northwestern Europe is still as high as 82%, and the natural gas inventory level in Northwestern Europe will remain high throughout the winter. Analysts predict that only when China’s economy recovers, the natural gas inventory in Northwestern Europe needs to be replenished.

Of course, the return of the market to rationality does not mean that the LNG price will fall all the way, but there should be a repeated process. In other words, the LNG market in 2023 will neither rise in panic nor fall irrationally. Market participants believe that the re-establishment of the LNG supply chain in Europe is bound to be a protracted battle, and the demand in Asia will also maintain a strong LNG price, but the effect remains to be considered. The International Energy Agency estimates that if the volume of natural gas delivered by Russia to the EU drops to zero, and China’s LNG demand rebounds to the level of 2021, the EU will face a natural gas gap of 27 billion cubic meters in 2023. Wood Mackenzie said that this meant that the price of natural gas in Europe in 2023 would be lower than that in 2022, but still higher than $25/million British thermal units. However, the LNG market in 2023 will not be as “magnificent” as in 2022.

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