Natural gas for Germany – rescued or calm before the storm?
from Dr Horst Tore Land
It's hard to believe - after eleven months of war in Ukraine, the destruction of the Nord Stream pipelines and endless crisis meetings in politics and business, you can buy natural gas in January 2023 for delivery in February 2023 at about the same price as a year ago.
Nobody would have expected that just a few weeks ago. But is the world okay again? Unfortunately, an in-depth analysis reveals structural problems that will plague Germany and Europe for a long time to come. Here is a brief overview of these challenges:
- The current price to be paid for natural gas deliveries in February 2023 is still four to six times more expensive than the historical average prices at which natural gas could be purchased before 2021. This is relevant because many companies often buy their energy supplies one to three years in advance. This means that these companies and energy suppliers bought the natural gas purchased in 2022 between 2019 and 2020 at significantly lower prices. The reality only becomes apparent when new supply contracts are concluded and will inevitably put pressure on companies' liquidity and cost structures.
- In 2022, Europe significantly increased the purchase of Russian liquefied natural gas (LNG), by October 2022 approx. 18 billion cubic meters had been purchased, for the whole of 2022 the import volume is likely to be 25 billion cubic meters. The currently well-stocked storage facilities in Europe and Germany would not have been possible without these LNG imports. A quick look at the figures shows how strong this dependency is – the LNG deliveries from Russia roughly correspond to the total natural gas reserves stored in all German storage facilities.
- In addition, Europe was only able to achieve the significant increase in LNG imports in 2022 because China, in return, significantly reduced its LNG imports. This is a one-off effect that cannot be repeated in the future, as economic activity in China will recover once the strict corona measures are lifted. Europe, and of course Germany as well, will therefore have to prepare for significantly stronger competition from China, Korea and Japan for the LNG quantities available worldwide.
- The remarkable decline in natural gas consumption in industry is mainly due to a drop in production. The chemical industry is particularly affected by this, but also other energy-intensive sectors. It can be assumed that these are long-term structural adjustments that will lead to a permanent reorganization of value chains and industrial structures.
Germany, with its tense supply situation at the beginning of 2023, can of course be pleased that there is no shortage of natural gas and probably will not be at first given the still mild winter. Nevertheless, we have arrived in a new world in which we have to adapt to tough competition for important resources such as LNG and will inevitably go through painful adjustment processes. In the future, successfully overcoming these challenges will require an objective and transparent discussion of strategic options for action and the ability to implement them efficiently. The KEMB forum will make a constructive contribution to this.