LNG market will return to rationality

In 2022, liquefied natural gas (LNG), which has experienced panic price surges and falls, is the most concerned commodity. But in 2023, under various factors, the surge in LNG prices similar to that in 2022 should not repeat itself, and the entire market will return to rationality.

At present, the warm winter in Western Europe is the biggest factor driving the LNG market to return to rationality. After a much milder-than-expected winter in Western Europe, local LNG reserves have remained super high, and local and global LNG prices have fallen. Spot LNG prices in Asia are now down nearly 67% from their record high in August last year. Spot LNG prices in Asia are now around $23 per million British thermal units, down around 32% since early December 2022, according to Refinitiv data, though still more than double their mid-2021 levels. This is a substantial improvement relative to the situation in 2022. It can be said that the panic factor has been ruled out. At present, the natural gas inventory in Northwest Europe is still as high as 82%, and the natural gas inventory level in Northwest Europe will remain high throughout the winter. Analysts predict that natural gas inventories in northwestern Europe will need to be replenished only when the Chinese economy recovers.

Of course, thereturn of the market to rationality does not mean that LNG prices have fallen all the way, and there should be repeated processes. In other words, the LNG market in 2023 will neither panic nor crash irrationally. Market participants believe that re-establishing the LNG supply chain in Europe will inevitably be a protracted battle, and demand in Asia will also keep LNG prices firm, but the effect remains to be considered. The International Energy Agency estimates that if Russia's gas shipments to the EU drop to zero and China's LNG demand rebounds to 2021 levels, the EU will face a gas deficit of 27 billion cubic meters in 2023. Wood Mackenzie said this means European gas prices in 2023 will be lower than in 2022, but still above $25/MMBtu. But in any case, the LNG market in 2023 will certainly not be as "magnificent" as it was in 2022.