News | Headlines Gas markets to remain tight into 2023


Worldwide Gas prospects European demand for LNG has set off global competition for supplies, even as demand tumbles in Europe and Asian growth stalls, according to the latest International Energy Agency quarterly Gas Market Report. Russia’s continued curtailment of natural gas flows to Europe has pushed international prices to painful new highs, disrupted trade flows and led to acute fuel shortages in some emerging and developing economies, with the market tightness expected to continue well into 2023.


Natural gas markets worldwide have been tightening since 2021, and global gas consumption is expected to decline by 0.8% in 2022 as result of a record 10% contraction in Europe and unchanged demand in the Asia Pacific region. Global gas consumption is forecast to grow by only 0.4% next year, but the outlook is subject to a high level of uncertainty, particularly given the unknown nature of Russia’s future actions and the economic impacts of sustained high energy prices. Russia has largely cut off gas supplies to Europe in retaliation against sanctions imposed on it following its invasion of Ukraine. This has deepened market tensions and uncertainty ahead of the coming winter, not just for Europe but also for all markets that rely on the same supply pool of liquefied natural gas (LNG).


Natural gas uncertainty


The gas crisis is creating longer-term uncertainty over the prospects for natural gas, especially in developing markets where its use was expected to rise at least in the medium term as it replaced other higher-emission fossil fuels.


European natural gas prices and Asian spot


LNG prices spiked to record highs in the third quarter of 2022. This reduced gas demand and incentivised switching to other fuels such as coal and oil for power generation. In some emerging and developing economies, the price spikes triggered shortages and power cuts. Europe’s gas consumption declined by more than 10% in the first eight months of this year compared with the same period in 2021, driven by a 15% drop in the industrial sector as factories curtailed production.


Natural gas demand in China and Japan was almost unchanged in that same period, while it contracted in India and Korea. Chinese gas demand is forecast to increase by less than 2% this year. Meanwhile, natural gas prices in the United States hit their highest summer levels since 2008. North America was one of the few regions of the world where demand increased, supported by demand from power generation. Europe has offset the sharp falls in Russian gas supplies through LNG imports, as well as alternative pipeline supplies from Norway and elsewhere. Europe’s surging demand for LNG – up 65% in the first eight months of 2022 from a year earlier – has drawn supply away from traditional buyers in the Asia-Pacific region, where demand dropped by 7% in the same period as a result of high prices, mild weather and continued Covid lockdowns in China.


Forecast


The IEA forecasts that Europe’s LNG imports will increase by over 60 billion cubic metres (bcm) this year, or more than double the amount of global LNG export capacity additions, keeping international LNG trade under strong pressure for the short- to medium-term. This implies that Asia’s LNG imports will remain lower than last


year for the rest of 2022. However, China’s LNG imports could rise next year under a series of new contracts concluded since the beginning of 2021, while a colder-than-average winter would also result in additional demand from northeast Asia, further adding to market tightness. In addition to diversifying supply, the European Union and its member states have taken other steps to increase gas security, such as setting minimum storage obligations and implementing energy saving measures for the coming winter. EU storage facilities were close to 90% full as of end of September, though the absence of Russian supply presents challenges for refilling them next year. Japan and Korea have developed contingency plans against LNG supply disruptions.


The IEA has conducted a resilience analysis of the EU’s gas market in the case of a complete Russian supply shutdown starting from 1 November 2022. The analysis shows that without demand reductions in place and if Russian pipeline supply is completely cut, EU gas storage would be less than 20% full in February, assuming a high level of LNG supply – and close to 5% full, assuming low LNG supply. Storage falling to these levels would increase the risk of supply disruptions in the event of a late cold spell. ● IEA executive director Fatih Birol has been holding meetings with European leaders to discuss responses to the global energy crisis and the critical importance of EU solidarity during the coming winter. These followed a special meeting of IEA member governments on 3 October to discuss how to enhance solidarity and co-ordination to better handle the global challenges created by tight natural gas markets.


Site for UK’s first fusion energy plant named UK Nuclear power


The UK’s Business and Energy secretary Jacob Rees-Mogg has announced that the West Burton power station site in North Nottinghamshire has been selected as the location for the STEP (Spherical Tokamak for Energy Production) prototype fusion energy plant. Driven by the UK Atomic Energy Authority, STEP will be the


world’s first, fully integrated, fusion energy plant and paves the way for fusion technology to become a commercially viable source of energy. The UK government had pledged more than £220m to support the programme.


It builds on the success of the UK’s fusion centre at the UKAEA’s home in Culham, Oxfordshire. West Burton A is a coal fired plant commissioned in 1966


owned and operated by EDF and due to be retired in March 2023. West Burton B is a CCGT plant, owned and operated by EIG and commissioned in 2013.


Mr Rees-Mogg, announcing the government’s choice from among


Artist’s impression of the STEP fusion energy plant reactor (Credit – UKAEA)


five contenders, commented “The plant will be the first of its kind, built by 2040 and capable of putting energy on the grid, and in doing so will prove the commercial viability of fusion energy to the world.”


6 | October 2022 | www.modernpowersystems.com


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