Gas hostage to geopolitics, market jitters

Gas storage is ample, the weather has remained largely mild and French nuclear availability has returned to pre-Covid levels. However, given the escalating conflict in the Middle East and stalemate in Ukraine, several risks remain ahead of the winter season. Listen to a discussion on the outlook for prices amid a very jittery market. Also, will the EU impose sanctions on Russian LNG?

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel

Guests: Henning Gloystein, Director for Energy, Climate and Resources, Eurasia;               
Wayne Bryan, Director European Gas Research, LSEG.

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:06

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting in today's pod. We'll start off by addressing the increasingly volatile geopolitical climate amid the escalating conflict in the Middle East, stalemate in the Ukraine, and concerns around energy infrastructure. Then we'll take a close look at the gas market. Wholesale prices are trading around 35 euros a megawatt hour, a far cry from earlier this year, and not least in the same time in 2022. Why are prices softening and what is the outlook for the winter? Are we in the clear or are markets still quite jittery? I'm Richard Sverrisson and helping me to discuss the geopolitical situation is Henning Gloystein of Eurasia. A warm welcome to you, Henning.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 0:53

Thank you Richard.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:54

Lemme just start off by talking a little bit about where we are in terms of prices. We are quite, quite a lot lower from than what where we were earlier this year and also compared to last year. What does this mean in terms of European industry? Are they happy with these prices now?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 1:09

Happy isn't the word I'd choose, but they can survive. We get this comparison quite a lot that last year, Europe's heavy industry was. On the verge of having a heart attack. They survived that but needed some intensive care and now they have like a drumming headache. It's not life threatening. But it would be good for industry prices. Were still somewhat lower and we think that could happen after next winter.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:32

Okay. So you maybe 20, 24 you're expecting to see some prices, ease,

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 1:37

we do. Yeah. We think that if we get through this winter with. With healthy inventories, let's say we come out of European inventories at 60, 65% out of this winter, mid-March 2024. Then Europe can return to what we'd call a new normal. And if this is a really cold winter or a long winter or some disruptions happen, we think that would be delayed to maybe 2025, but. Basically the emergency is pretty much over. In order to have or to see real energy shortages this winter, we'd have to see an extraordinary conflagration of or combination of really bad events happening. And we think that's very unlikely.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:11

But you think now that with what's happening in the Ukraine and Russia is not really gonna have any impact on any of the gas flows to Europe or even the gas storage. I know some maybe is stored in the Ukraine.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 2:22

Yeah, things could still happen. Of course. The remaining gastro U Ukraine could get cut Russian, LNG to Europe, which is still coming in could get cut. But even if that all happened, we wouldn't see actual shortages. We'd see price spikes, but real energy shortages like we were fearing this time last year would still not be be happening because look at the inventories even the last 10 days, which were actually pretty cold across continental Europe. You could see, even if you just basically project that throughout the rest of winter, we would come out of winter with some gas in storage. It would be pretty empty, but there'd still be some gas around now if that happened. So really long and cold winter. That's the scenario where we say a new normal would be delayed by another year, but it would take a really long and really cold winter or some major disruption to get to that. And otherwise we think we, we should be in a fairly enormous situation by springtime 2024.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:13

And obviously, a lot of new energy terminals, whether floating or fixed, have also helped the situation here.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 3:19

Absolutely. I really think this is some credit is due to the industry and to policy makers in Europe. They have adjusted really fast. Had you told people in, in early 2022 that Europe could add, I don't know, half a dozen floating energy terminals and Germany would become a major LNG importer and that they could live with that, with the loss of. Of the biggest gas supply to Europe without serious energy shortages. I think you'd have most people, including myself, would've shaken eye heights.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:46

I laughed you out of the room. I think you maybe, yes. But you mentioned Russian, LNG that's still flowing into Europe. Is there any chance that there could be some sanctions imposed o on those kind of shipments?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 3:59

Yes. We think there is a high risk of this happening. In fact it is. We tell our clients that to watch out for. Spring 2024. If Europe can get through this winter without any major trouble, and if the situation in Ukraine is not improved in any way, which sadly we don't currently expect. Mr. Putin gave a speech today saying all his war goals are still in place and he'll see this through then the European Union might see itself forced to to launch a 12 round of sanctions. Which might include LNG imports because it's, these are really uncomfortable headlines for EU governments to when they come in it's ah, Belgium is still importing LNG, Spain from Russia, so is Russia so is Spain. But of course that gas doesn't just stay there. It goes to Germany, it goes all over Europe into the pipeline system. So they're uncomfortable headlines. So if you can live without Russian LNG and the need. Still there for the sanctions next year. I think that would happen. Yes.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 4:53

But on a, my next question is it purely speculative in many ways, Henning, but if there were to, if the sanctions were to be imposed on Russia what kind of impact would that have on global LNG flows?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 5:07

That's the sort of stuff you actually have seen in the oil industry a little bit with with you phasing out ship crude oil from from Russia, especially via the Baltic and the Black Sea. It wouldn't cause a shortage globally because the ship gas can be shipped elsewhere so the Russians could ship it to, to China. That could there's other buyers in the world that probably have to discount it as they're doing in oil. But it would drive the price up in Europe. A little bit. But I actually think Europe could do this fairly easily now because if you look at the overall imports Russian, LNG in makes up I think between three and 5% of overall European gas imports now. So they could probably get along without it especially as Europe is still making very strong efforts to structurally reduce gas consumption across Europe. And this will continue. And squeezing another three or 5% of gas out of the system is probably possible. Yeah. But of course you are reducing the number of available supplies and that's always a bit of an issue.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:01

And that could, squeeze supply and make sure that maybe the new normal is delayed by another year. And in your words, or, precise, that kind of scenario.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 6:08

And so when we say new normal, it's not the old normal where everything was lovely. And there was ample gas and it was really quite cheap. Gas in Europe is a gas commodity, and that means it's unusually expensive and it prices it out of all sorts of things. In power generation as a base load, fueler doesn't really work. It energy intensive industries are struggling with the price of gas to remain competitive with. We've seen all the headlines. So it's the new normal is not a nice normal it's like I was saying, living with a headache.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:36

Yeah, absolutely. A thumping headache, probably as, as well. I think. We've seen moving from Europe into more what's happening in the Middle East.'cause that's also extremely worrying. Not at least for those who are involved. But, we've seen missile attacks on tankers in the Gulf from Yemen sort quite close to Gaza. What's your outlook on risks to energy, supply routes out to the Middle East. And where, most of the region, what most of Europe's LNG comes through through that region.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 7:05

Yeah. So we currently don't really see a major risk of a configuration of the conflict in the Middle East. So that would mean Israel goes war with Iran. Iran tries to shut down the straits of Horus or the Red Sea gets totally shot shot down, shut down by the HHI rebels from Yemen. We only see a risk of about 10% of that, but 10% is. It's still a fairly high figure because as you say the Middle East oil and gas supply is exceptionally important. And so it is a problem. And what's, I'll say this as a geopolitical analyst but it is worth keeping in mind in 2021, barely anyone thought there was a major risk of Russia shutting down all its gas supply to, or most of its gas supply to Europe. Now there is a risk. To oil and gas supply out of the Middle East that, very few people foresaw the problem as it is happening now. The catastrophe that's happening in Gaza right now met very few people, including ourselves for foresaw that, in fact, just a year ago, the European Union was trying to sign all sorts of deals to unlock l and g out of the East Mediterranean as a replacement for Russian gas. And that's all off the table now. The initial deal agreements between Israel and Lebanon, you can totally forget about those. And Israel's and Egypt's relationship is also being very heavily tested in this environment. That's another geopolitical risk to gas supply scene. Now, just to look forward a little bit, in 2024, if President Trump came into power again, or that would be 2025. Who knows what he'd do to gas supply. He might raise tariffs on us l and g to Europe. It's it's Trump. We don't know what he'd be up to, but we do know that he doesn't really like Europe. And then suddenly our most important supply, VNG. Gets more expensive. So the what, the considerations of where you get secure, reliable, and affordable supply has become really important. And risks that many dismiss have happened. So hence when I say we don't really think there's a major risk of a total blockage of oil and gas out of the Middle East, okay. We don't see a high risk, but the risk exists and that's not good.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:06

No, absolutely. What's your view on the kinda longer term view of both LNG exports out of the Middle East and also the production o of gas from, I do not know. It's what's the Leviathan field and other others.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 9:18

The gas is there, of course. The East Mediterranean gas results are enormous leviathans there. The Aphrodite Cyprus field, that would be really convenient for the EU because it's in the eu. That load would be fantastic. The problem is it's deep water. It's ge geologically active, and it's geopolitically too active. So it's huge problem. And by the time you've extracted, developed it. The European Union gas buyers have a time window that is getting smaller every year. If you are gonna spend, I don't know, random figure, 10, $15 billion on a LNG facility, Greenfield. You need a return on investment. And if that window closes by, let's say 2045 or 2050, that window is really short. And yes, I know there's carbon capture solutions in theory around, but if you look at how much commercial carbon capture is out there now we'd have to deploy it really fast. And of course, it just adds cost. You are adding a CCS cost on top of gas, which is structurally quite expensive at the moment. All the time. Renewable solutions and storage solutions are getting cheaper. And they're local and they're domestic and they're clean. So I think that's where the trend's going.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 10:21

Do you think there's then a recognition that LNG and gas will be a significant part of the energy mix in Europe, 2030 and beyond?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 10:30

2030 and to 2040? Absolutely. There's I haven't seen any credible solutions for totally phasing out gas out of Europe before 2040. I think that's. Totally unrealistic. Especially if you look at the German ga coal phase out by 2030, that's in a few years time. They've already phased out their nuclear plants. You cannot build renewables and storage solutions that fast as I'm, I'm a major supporter of things like offshore wind and hydrogen electrolysis and solar. Great. All fantastic, but you can't build that fast. But look at Poland. Their coal reliance is enormous. So I, I don't see a way for gas being totally phased out of Europe, even in power generation before 20, 35, 40, maybe even 45. But after that Sure. Power generation and then of course you, you're still stuck with industrial gas. We'll have to wait and see where that leads us.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:18

With, especially with green hydrogen, I think. Yeah. Yeah. But in, in terms of if it's still gonna be part of the energy mix. So up to 20, 40, maybe even 20, 45. Then European companies, even countries, potentially need to sign deals. They need to find some of the gas out there and get that shipped to Europe, aren't they for up to 20 years?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 11:37

Yes. But to be fair, we have seen a fair few longish contracts being signed in Europe, especially with the United States. They're much more flexible than the Middle Eastern supplies. If you look at Qatar, normally they they demand a length of 20 to 25 years. They're very inflexible about your right to resell it, about your flexibility in monthly, reductions and increases in cargoes. And of course, we just mentioned the slide geopolitical risk here. And this is one of the reasons why countries like Germany or the importers there have been a bit reluctant to sign such long-term binding deals. If, because they know that their demand is gonna go down and they don't wanna be s sat in 2045 with huge contracts that are inflexible and credit to the Americans sellers, they're, then they are much more flexible. They're and the term contracts are shorter. It's also because, share gas has a lot shorter lifespan, so they're perfectly happy. Just to sell you gas for the next five to 10 years and then see what happens then. But that is the solution most European buyers tend to prefer at the moment. And of course in, if you go to Northwestern Europe, be brought Norway. Which is still capable to raise gas supply for a few years. And that, that. Probably meets most of the demand. But but on the fringes, of course there's you do need a couple of long-term contracts or you just rely on the spot market. And there are some buyers in Europe that who say it might be better to just rely on a really volatile spot market for the next five years, rather than binding us into a 25 year contract that we don't know what the end looks like. But those are debates and at executive levels that I think are being had across Europe at the moment.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:04

Absolutely. Especially with these kind of price levels and the geopolitical situation. For sure. Just a couple questions, Henning before we go, but I think. The first one we saw the COP 28 and this week. What's your view, what's your reaction to what the deal that was signed?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 13:20

I think this is a classic glass half full, empty deal. If you want to criticize it, you can. It's not a phase out of fossil fuels. I would argue you couldn't really expect that from a cop that was held by, hosted by an OPEC member. And it's not realistic. I personally would go with the glass half full aspect. It does talk for the first time for of a transition away from all fossil fuels. The last time anything like this was achieved was cop 26, 2 years ago in Glasgow, and they only talked about coal. Last year nothing was really achieved. So this year at least there is that agreement as flimsy it is as it is, but it raises the pressure for next one. And the tripling of renewable output goal is good. Loss and damage fund is another one of those. You can criticize it as a being poultry and as in a barely billion dollars in it, and you probably need more like a hundred billion, maybe even a trillion dollar. Okay. But the fund is there now, so the political pressure will increase every single year for rich governments to just put another billion in. So I think it's progress. Is it too slow? Yes, but it is progress. I've, I came out of this one I didn't attend, but, when I saw the deal was it a day or two ago, I thought, ah, that's a little bit better than what I thought it would.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 14:33

So you weren't totally crest forward here then? No.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 14:35

I am quite skeptical about the next one though. It's another petro state in Baku. But it, that's the originality. It had to go to Eastern Europe, and of course the war in Ukraine impacted that. The Russians vetoed anything in the eu. Okay. We'll have to wait and see. But I'm skeptical about the next one, but, we'll, we've got another year about that.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 14:51

Yeah. We'll try and maintain an open mind there ing, but just the final question, I know that, you mentioned Germany and the, and the import of gas, the country has some very. Ambitious plan, should we say, to build gas plants and to make them hydrogen ready as well. What's your view here?

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 15:08

I, it's a little bit like the glass half full, empty, cautiously optimistic or mildly skeptical. Somewhere between there. We've talked about this before. With hydrogen, I am quite confident about green hydrogen in certain aspects for heart to bait industry. It already is starting to work in the steel sector, in the chemical sectors, feedstock industrial gas replacement. To use it as an intermittency solution for offshore wind. It is starting to work with modern electrolysis units, whether hydrogen gas is a. Viable alternative into power stations. I'm sitting on the fence. I don't really know because but I have, so the solutions aren't yet there yet? That this is what I mean why I think it'll work in heavy industry because the solutions are already there and they're being rolled out, albeit slowly, but they are happening now. Hydrogen gen five, gas fired power stations. I haven't seen it yet. Engineers say it works. Okay, great. But whether it'll be affordable we'll have to wait and see. And it's the same with heating. There I'm even more skeptical. I don't think people want hydrogen in the houses.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:07

No. The cynic in me would say potentially you have, hydrogen ready gas plants, but you can then get to the point where you say, I'm sorry, we're not ready to burn hydrogen. It's too expensive and the technology's not there. Let's just continue burning gas.

Henning Gloystein, Director for Energy, Climate and Resources, Eurasia: 16:23

Yeah, of course. I think those quiet discussions happen and then, and hope that CCS works and or we just offset the hell out of it Exactly. And buy half of the rainforest in the world. Yeah, sure. These, those are all problems. I think we probably know most of the solutions to get to net zero, especially in power. But the fine tuning we haven't got there yet. The details are Yeah. Are very important. And where hydrogen works as a fuel in the gas fired power station or as an electrolysis to to resolve intermittency of renewables, I probably lean towards the latter. I'm not an engineer we'll have to and see.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:58

Absolutely. Henning. Fascinating as ever. Thank you very much for joining the Monte Weekly podcast. And now to talk to us about current market dynamics and the outlook for prices ahead is our old friend Wayne Bryan of LSEG. A warm welcome to you, Wayne.

Wayne Bryan, Director European Gas Research, LSEG: 17:15

Good afternoon, Richard. Nice to see you.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 17:17

So gas prices say have normalized. They're maybe stagnated around a certain level. They're much, much softer than they have been this year, and also obviously last year. What can we expect over the coming weeks and months?

Wayne Bryan, Director European Gas Research, LSEG: 17:31

I think at least I think at least as you mentioned, prices have normalized a bit, I think, at least for the remainder of this winter. I think we are looking at we've obviously, we've seen the uptick after what happened in the Middle East around October 8th. We saw prices. Trade higher and a lot of uncertainty. Since then, we've seen, demand has been remain pretty weak. Supply Norway, et cetera, has been strong and we've seen prices we've lost that sort of premium, so to speak. And we're now trading around this 34, 35 level. Perhaps even we've testing 30 at some point. And I think what we're experiencing now is a bit a comfortable situation, but there's still risks ahead. We still have, January, february, March to navigate. As much as the fundamentals in terms of, in both sort of Asia and Europe are pretty good in terms of storage levels. Obviously in Europe, storage levels in Japan, storage levels in Korea are pretty strong as well. Demand is still quite tepid from Asia, apart from obviously the sort of more price sensitive importers from Southeast Asia. They obviously are buying at these current levels. And just, yeah, the market is quite benign at the moment and just, but it, we still need to be aware, and as as I've mentioned before, upside production potential is limited. We've got Norway running at, full power, more or less, and we expect that to continue around 3 30, 3 40 for the remainder of the winter period. In terms of MCM day, yes. Per day. Sorry. Yes. You've got, UK production has been reasonably resilient. We've got still strong levels of LNG imports, which has allowed us to, get storages to a good level. And we've seen in times of look, we've had these few, couple of short spikes. We've seen storages step up, few changes in the price to incentivize some withdrawals. And we've seen storage ablely manage demand. And I think if we look forward, I think. If things remain as they are, we'd expect prices to trend lower. But I always say, experience teaches me that this won't be the case. And If we get simultaneous cold spell in, both in Northern Hemisphere and also in Europe at the same time, our price would then have to rise accordingly.'cause, and I think that's the risk here. We mention this, a hundred B 45 to 50% at the end of the winter period, being in stocks at the moment, that looks about right. If we see a real, uptick in the weather, consistent cold spell, uptick in demand in North Asia as well, we could have a shortfall, of another, an extra 10, 15, say BCM. That takes into a very different situation moving into injection season. So I think we still see some resilience in the forward price for that reason. But at the moment, yeah. It all looks, all, looks quite rosy. Yeah, absolutely. But it's still jittery, isn't it? Correct, yes. And we say it's, it's, it. It's comfortable but fragile in respect of there's still quite a lot of risk. And that's due to the lack of flexibility. We have, we've got increased capacity, but we need to LNG I'm talking, but we still need to pay to attract that. Russia's, they've got their flows coming through Ukraine, obviously we've lost all the volumes that we know about, so that lack of flexibility means we still have to be aware, and I think the market remains slightly jittery until we start knocking off the months towards the end of March.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:30

Okay. So then. Exactly. Yeah. So January, February time, if there are some kind of, if there are outages in Norway or something happens, the geopolitical risks are obviously still there. Still on the table. Yeah. Yeah. Excellent. What, what do you think are the biggest risks to meeting storage targets next year?

Wayne Bryan, Director European Gas Research, LSEG: 20:49

Do you mean for the end of this?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:50

Yeah, for the end of next year.

Wayne Bryan, Director European Gas Research, LSEG: 20:52

Yeah. Sorry. Do you mean the end of winter? Yeah, this winter. Yeah. Yeah, exactly. Yeah. I think, again I've highlighted, so we've seen, residential demand hasn't really been that strong, but in the absence of a lot of these last year there was a lot of campaigns, turn your heater off, save energy. Prices were extremely high and I think now that would have less of an effect. Sustain colder spell. People are gonna reach for their heaters a lot quicker. I certainly, a couple of cold spells already. I've ramped up my heat in last year probably would've just put another hoodie on. So things that power generation. We know that gas for power demand excuse me, has been softer this year. However, power demand is starting to increase and I think that could then see an increase in gas of power demand, uncertainty in terms of renewables. We've seen some spikes when the wind's low, et cetera, but it needs to be consistent, which we know that probably won't happen. French nuclear a lot stronger this year. So far so good. We've all know what can happen with that, so that's another risk as well. But I think on the supply side, there's the, obviously the LNG risk, if Asia really starts to ramp up demand, which it's still quite tepid, but it can change in an instant. So I think these are there's a combination of risks for me, but I think. The sort of weather risk of a extended cold spell in both Atlantic and Pacific basins, for me would remain the biggest risk.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:03

Yeah, absolutely. And that tends to happen in January or February as you've mentioned, yeah. But we there's barely any spread between the front month and the looming summer prices here. Wayne. What does this mean? Why do we remain why are summer prices so high or relatively elevated at the moment?

Wayne Bryan, Director European Gas Research, LSEG: 22:19

Because of that uncertainty I mentioned We still haven't nav, we still haven't navigated through winter. We're, we're not even 50% through, we're obviously close to it, but, we've still got these periods where, as you've said, typically January, February, we've seen these spikes in cold weather. We've seen it happen. We've had quite a lot of mild winters over the last few years in terms of, but this winter should not be as mild as last winter. And we've seen a couple of cold spells already. And I think you need to keep that premium. But if you look at the winter, summer spread for wind's 24, it's around five euros at the moment. And as we again, knock off the month approaching injection season, we'd expect that price to start to fall. And if you look at some of the latest spreads, you can see them tighten up as well. But now if you look at the market, there's a sort of. One, two Euro spread between day ahead. And this happened similarly last year. If you look at the market last year. Stay ahead and there was a lot of divergence. And then we come into December and Jan, everything get harmonized, and then as we get towards the summer, again, prices will start to trend lower.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 23:16

In this sort of medium to longer term, do you think we will remain structurally higher than we have been because of this? The, the inherent sec insecurity of the geopolitical situation at the moment, the absence of Russian pipeline gas and under dependence on lng, is that gonna remain that we're gonna correct?

Wayne Bryan, Director European Gas Research, LSEG: 23:33

Yeah. Yeah. Correct. I think, like I mentioned, this limited potential for increased production or imports, unless you pay for them, of course, means that prices will have to remain at reasonable levels to enable us to be able to react if indeed we do need to import more volumes. But, so I think. That risk isn't gonna remain until that big wave of LNG comes online, sort of 2026. I think you look at the market, you can see the sort of differences in prices. Around these sort of times. So I think yes. We're gonna have to stay there due to the lack of flexibility.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:06

I, Henning, who was on the pod a little bit before you, Henning. Yes. But when he talked about the sort of new normal in terms of the industry having to react to that and instead of being pain and heartache, it's now just a throbbing headache.

Wayne Bryan, Director European Gas Research, LSEG: 24:17

The, these Yeah. That's a nice way to describe it. And I think he probably would've spoke a bit about the industrial demand and something we've been talking about in our reports and looking at the analysis of that. We said around a 1% or so increase. And we've seen that gradual increase, but the last couple of months we've seen it pick up a bit. And again, price related. But I think for the industrial demand, we still think it'll remain relatively flat. There is some increase, but if you look at the overall sort of overarching Euro zone itself, looking at the economy, I think will the end user demand be there to, to help that increase in industrial production because. We're still not looking great in terms of, you look at a lot of the pmi, I think Germany got a little bit better last month, but still in the quagmire, really industrial demand remains in a downturn. It still remains, compared to previous years. We're in a very different times and some of it structural, some of it we've seen offshoring, et cetera. So that again, is something that we think will continue over the next few months at least, and maybe we see a slight recovery in the summer if. There is an economic recovery, which doesn't look that great at the moment.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 25:19

Do you, I talked with with Henning also a little bit about sanctions and the possibility that the Europe could impose sanctions on Russian LNG. What's your view here? Do you think that's a likely scenario?

Wayne Bryan, Director European Gas Research, LSEG: 25:30

Not in the current climate, as I mentioned, and we've spoke about this limited upside in terms of production and imports, et cetera. And then if you take away Russian, LNG, which we know has increased significantly since the invasion. That would've happened a long time ago if we were really serious. I think it's, yes, give the option, but I think it's preparing for the next couple of years when we get additional supply globally, which should loosen up the global balance and allow more gas to flow. And we're obviously increasing our capacity. So at the moment, I think the, there's no real appetite to to stop these imports currently. So I don't see it happening this winter. At all. And even next winter still seems pretty tight. So maybe. Maybe this time next year you might start to see that sort of, move, start to happen. But in the short term, I certainly don't think that will happen. It would've happened already if we were serious, but that shows the reliance on Russian LNG imports.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 26:27

Absolutely. Do. Do you think on the flip side, there's a chance that Russia would just stop them?

Wayne Bryan, Director European Gas Research, LSEG: 26:33

In light of the sort of lack of market for the gas that. Used to come into Northwestern Europe. I certainly don't think so. And the sort of the financial repercussions for them over the last couple of years have been severe. So why would they then further lower their income. So I don't see from the Russian side at all. I'd be very surprised unless something developed in the war, which is still going on. There was some sort of adverse developments there and maybe that could be a case for it, but I certainly. We'd see that you really not happening.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 27:03

Yeah, I mean it's a, it's not a huge chunk of the LNG imports, but it's important. It's significant.

Wayne Bryan, Director European Gas Research, LSEG: 27:08

Every bit's important at moment, as I mentioned in our current situation of, lack of sort of flexibility and options and yeah, I think that still remains an important source

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 27:15

for sure. Sticking on the topic of sanctions, could potential US sanctions on Arctic LNG two in Russia could that have what kind of impact could that have, do you think?

Wayne Bryan, Director European Gas Research, LSEG: 27:25

That could, yeah, it would definitely have a slight bullish impact. But again, the implications yet are not very clear of how, it's, we're still trying to understand exactly how this would work, and it's meant to start next month, so it's gonna, it's gonna meant to start next month. So it's gonna be interesting to see how it develops, but at the moment, there's no, I can't really give a view because. We still dunno the implications yet. It's not in black and white, but again it would probably provide some bullish incentives to the market because every molecule counts at the moment, despite the ex extent bearish circumstances at the minute, as we know, that can can change quite quickly.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 27:59

Henning and I chatted a little bit about the geopolitical risks. Is this something that concerns you as well for potential imports through the Sue Canal, the Straits of Ous? The potential closing of that that of roots through that area. Is this something that that you are worried about?

Wayne Bryan, Director European Gas Research, LSEG: 28:17

Yeah, we've seen already, we saw the initial. Uncertainty or risk premium as soon as the sort of the situation in the Middle East escalated on that weekend, I think of the seventh 8th of October. And I think we saw that concern, but since then we've seen there was no real significant impact. If you look at Egyptian export, 70% of them have been delivered so far in 2023. So it was a small impact, but not big enough in terms of the vessels. That is a concern, and I think that remains a concern, but. I don't see it. It, while it's a risk, I don't see it happening over the coming months. And I think if you look at where prices are now, we've lost a lot of that. Most of that premium that we did put on, it's still there. But would it have already happened? Probably already? I think. We've already seen things escalate way beyond what we thought would happen. So I think the fact is what we've already seen and we still haven't seen any impact on, we've had a couple of vessel incidents. Nothing that's really, impacted our market, materially, so to speak.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 29:13

What about production in the region? Leath and both an LNG and production in the region. Do you, did you see that being just like stopped

Wayne Bryan, Director European Gas Research, LSEG: 29:21

for the time being? No, because you've seen what happened. It's restarted at the moment, and I think. If we're being honest and looking at the development, I think the operations or the situation, it's, there doesn't seem to be a massive amount of months of this to continue. So I think we're getting close to some sort of end point. So I think that risk is already starting to dissipate. However, it still could remain a militant attack or something can happen, but the fact has been restarted. We're continuing now. I still think the risk will always remain there, but at the moment I think it's ebbed away. No, absolutely. I think, but it's bubbling away in the background. Like we all aware of this geopolitical risk and we said it's not just. What's happening in the Middle East. You've still got the war in Ukraine going on, which a lot of focus has shifted away, but it's still happening.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 30:02

And also there shouldn't issues around energy infrastructure. Yeah. Is anything happens there? And we talked about the jittery market, Wayne, didn't we? And Yeah. Something can, something happens there.

Wayne Bryan, Director European Gas Research, LSEG: 30:10

Poof. Price spike we spoke about before. Yeah. In, we saw what happened with, before when the pipeline. That there was a problem with that pipeline. And then once the investigation said it was a ship dragon and anchor, but we still saw risk premiums rise exactly just on the news of it. And it wasn't even a big, a big issue. But it's more about the sentiment around infrastructure, and it's something we've spoke about before. And something that remains a risk. But if you look at what's been done in terms of the UK and Norway, they've set up protection, drones, et cetera, that, to manage that. But that still remains a risk, but I don't think is as strong as it. Probably was last year.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 30:40

With supply so tight, Wayne as well. Do you expect, for example European companies, maybe even countries to, to be looking to sign more long-term deals with suppliers out there? Just in order or maybe going into the spot market? What's your view for the shorter term? Because the long term future for gas. Is still uncertain in some quarters and you've got the pressure coming from the cop, where they, it wasn't committed to phasing it out, but it was transitioning away from fossil fuels, which is, the

Wayne Bryan, Director European Gas Research, LSEG: 31:09

keywords voluntary from cop. Yeah. Voluntary keyword.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 31:12

But do you then see there's a long term future for gas and the European energy mix, and do you expect maybe that companies should. Potentially signing 15, 20 year deals to secure those supplies.

Wayne Bryan, Director European Gas Research, LSEG: 31:24

We've seen a couple of deals signed of later, a bit longer, but I think if you look at the reluctant from European players to commit to long-term contracts over recent years, even in the light of what's happened in terms of the disruption to supply of the loss of Rus and molecules and the titan of the European market over reliance on LNG, I think that we still haven't seen it. I think there you could see a cup, but I'd really. When you've got this large wave coming online in a couple of years, which will loosen up the balance, I think that makes you less reluctant to want to sign a long-term contract. We know these waves are coming online from 25 26, where we're gonna see large sways of LNG capacity, and that I think, could you then sign into your contract now and you get to two years down the road. You've got eight years left, 12 years left of your contract. And the spot market has fallen. But I think you're right in terms of the guarantee, it guarantees, it, it reduces your exposure of course. But I think the attitudes of Europeans and the pressure from governments probably limits the option of many long-term contract. We saw BASF sign a couple of other players sign, but I think that's, I think in terms of. Overall, we, I don't think we'll see huge ramp up in long-term contract signing.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 32:37

No. Interesting. And I, we talked about, as you said, Wayne, you mentioned your experience in this market, and you can't take anything for granted. Okay. We're at very low levels compared to where we have been in the last 18 months, but anything could happen.

Wayne Bryan, Director European Gas Research, LSEG: 32:51

Yeah. We've lost about 20%. I think the price is TTF in the last few weeks, and it just goes to show how this, the volatilities is still there. The nervousness is still there, but at the moment we're just riding this sort of comfortable wave of, low heating demand, robust levels of supply. Which is keeping the market quite, quite sanguine at the moment. But I do believe, yeah. The experience tells us that things will change, and we see that in the sort of tighter spreads and like you mentioned about the summer.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 33:18

Let's hope there's no major beast from the east, This coming winter.

Wayne Bryan, Director European Gas Research, LSEG: 33:21

One can only hope.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 33:22

Yeah, exactly. Wayne, thanks very much for being a guest on the Montel Weekly podcast.