Europe’s Rising Demand For Gas Provides Gains For Australian LNG Exporters

LNG gas storage tanks are shown at the Woodside operated North West Shelf Gas Venture in the north of Western Australia, on June 17, 2008. (Greg Wood/AFP via Getty Images)

Australian gas exporters are expected to benefit from high gas prices caused by the intensifying war in Ukraine and a drop in Russia’s gas exports to Europe following the recent destruction of the Nord Stream pipelines.

Multinational investment bank UBS has raised its forecast for the prices of Australian liquefied natural gas (LNG) in the Asian market by 40 percent and 50 percent for the European market.

UBS analyst Tom Allen said Europe could lose seven billion cubic metres of gas supply by March 2023 due to the shutdown of the pipeline to Germany and an interruption of Russian gas supply via Ukraine.

The bank said Europe had substantially increased its LNG imports to make up for the lost gas supply.

This could be a boon for Australian gas companies as the country is one of the world’s top LNG exporters.

Many important LNG projects are located in Western Australia and its offshore waters, such as the North West Shelf, Pluto, Gorgon, Wheatstone, and Prelude. At the same time, the country’s eastern coast is also a major player in the gas market.

“We expect gas markets to remain tight until prices normalise in 2026 when the next wave of LNG projects come online,” Allen said in a note to clients.

New Gas Hub to Be Built in the Europe

Meanwhile, Dutch gas grid operator Gasunie has signed deals with relevant parties to build a new LNG terminal in Brunsbuettel to increase gas imports and reduce Europe’s dependence on Russia.

In September, Australia’s largest independent oil and gas company Woodside signed a 16-year supply agreement with Germany’s industrial giant Uniper to supply up to 12 cargoes (equivalent to one billion cubic metres) of LNG per year.

As the energy crisis is impacting the continent, European households are forced to cut down on energy consumption due to power shortages and price hikes.

Many countries, including France, are calling on their citizens to reduce energy use to avoid energy rationing and cuts during the winter.

While there had been a significant increase in coal prices, gas still remained more expensive, which USB said could prompt some countries to rely more on coal for power generation.

“This supports further gas-to-coal switching in the power sector, particularly in the coal-dependent countries,” the bank said.

“We expect the situation to persist for upcoming years due to the extremely tight gas market.”