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Surging Global LNG prices forces Europe to keep an eye on the Gas-to-Oil fuel switch

Surging Global LNG prices forces Europe to keep an eye on the Gas-to-Oil fuel switch

Surging Global LNG prices forces Europe to keep an eye on the Gas-to-Oil fuel switch

  • 09-Sep-2022 5:05 PM
  • Journalist: Francis Stokes

The prices of Liquified Natural Gas in the European region are rising on the back of high demand from European countries to meet their energy requirements which would be higher due to increased heating requirements throughout the Winter. The high LNG prices force several European refineries, power producers, and Industrial users to utilize fuel oil or other liquid fuels.

Several reasons contribute to the alarming price hikes of Liquid Natural Gas in Europe during September 2022.

Several European markets are worried about their LNG inventories' sufficiency to withstand the upcoming Winter and are constantly looking to procure more LNG.

Gazprom indefinitely suspended the LNG supply to Germany, which was being supplied through the Nord Stream, further tightening the LNG supply in Europe.

The Imports from the US are lower than expected because the anticipated partial resumption of the Freeport LNG terminal at the start of October 2022 has been delayed to November, forcing European Countries to scramble for the remaining LNG supply available in Europe.

Several Asian countries that do not import LNG from Russia also face the consequences of high demand for LNG imports in the European market. South Korea will likely seek out more liquefied petroleum gas to add to LNG in the upcoming months to increase the calorific values of regasified LNG for use in heavy industries and utilities.

The single most significant sector for fuel switching is power generation; however, refiners also buy some natural gas as supplemental fuel or feed for their hydrogen production facilities. So by increasing stationary gas production at the refinery using liquid feedstocks such as naphtha and LPG to produce hydrogen, and switching to LPG and fuel oil instead of gas for heaters and boilers, operators refiners try to reduce the amount of natural gas they buy.

According to ChemAnalyst, if the partial resumption of LNG supply happens in November as announced, the prices are expected to drop slightly during November. The full operation rate of Freeport LNG will be resumed only by March 2023, suggesting a supply tightness in Europe still in March of next year. But the overall LNG scenario will likely be demand tilted for the rest of 2022. 

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