# Energy Security in Flux: Gas Faces 2025 Stress Test

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 15 Jan 2025, 25 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/22746816-beb6-4303-887c-b2660080c786/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

This could be a challenging year for natural gas. Market dynamics are in flux, and how buyers and sellers react to the changes will make the year ahead a ‘stress test’ for the fuel and how the sector positions itself for the future. On the supply front, a rapidly shifting geopolitical landscape has had a massive bearing on the trade flows of pipeline gas and LNG. In terms of demand, heat waves and extreme weather events have inverted seasonal consumption trends. So what can we expect from 2025? On today’s show, Tom Rowlands-Rees is joined by Fauziah Marzuki, BloombergNEF’s Global Head of Gas Markets, to discuss findings from her recent report “Gas Things to Watch in 2025: Crunch Time Before Comeback”. Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: Gas Things to Watch in 2025: Crunch Time Before Comeback - https://www.bnef.com/insights/35571/view See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Tom Rowlands Reis and you're listening to Switched
[0:02] Speaker 1: on the BNF podcast. At the beginning of every year,
[0:05] Speaker 1: BNF analysts release their series of Things to Watch notes,
[0:08] Speaker 1: laying out their predictions and insights for the year ahead.
[0:11] Speaker 1: Today we turn to our gas team and take a
[0:13] Speaker 1: look at the predictions of what is one of our
[0:15] Speaker 1: most in demand commodities. Since the Russian invasion of Ukraine
[0:18] Speaker 1: in twenty twenty two, the gas sector has experienced extreme
[0:21] Speaker 1: swings in pricing and the complete re routing of some
[0:24] Speaker 1: trade flows. The drama isn't over yet. Our analysts foresee
[0:27] Speaker 1: further turbulence ahead and have DUG twenty twenty five a
[0:30] Speaker 1: stress test for gas in terms of supply. The world's
[0:34] Speaker 1: largest exporter of energy, the US, may look to explore
[0:37] Speaker 1: even more under the incoming Trump administration. While the final
[0:40] Speaker 1: gas pipeline from Russian to the EU has now been
[0:42] Speaker 1: turned off for demand, what was traditionally a winter fuel
[0:45] Speaker 1: is now being burned through summer months as countries seek
[0:48] Speaker 1: additional power generation to cope with rising temperatures and away
[0:51] Speaker 1: from the buying and selling of the commodity itself. Services
[0:54] Speaker 1: sectors are also feeding the pressure with an over supply
[0:57] Speaker 1: of ships hitting the seas to guide us through some
[0:59] Speaker 1: of the things on the horizon for the global gas market. Today,
[1:01] Speaker 1: I'm joined by Fausia Marzuki, Bloomberg and yf's global head
[1:05] Speaker 1: of Gas Markets. Together we discuss findings from her team's
[1:08] Speaker 1: report Gas Things to Watch in twenty twenty five crunch
[1:11] Speaker 1: time before comeback, which BNF clients can find a BNF
[1:14] Speaker 1: go on the Bloomberg Terminal or BNIF dot com. Now
[1:17] Speaker 1: to the show and what to expect from gas during
[1:19] Speaker 1: the year ahead. Thank you for joining us today, faus
[1:32] Speaker 1: on the podcast, Let's talk about gas.
[1:35] Speaker 2: Who thanks for having me.
[1:36] Speaker 3: Tom.
[1:37] Speaker 1: Last time you're on the show, one of the things
[1:39] Speaker 1: you talked about was how weather cycles are and extreme
[1:43] Speaker 1: weather events and on top of that are impacting the
[1:46] Speaker 1: price dynamics of coal.
[1:47] Speaker 4: We're talking about a report that you published with our
[1:49] Speaker 4: colleague you me Kim.
[1:50] Speaker 1: But now we're talking about gas, which is your your
[1:53] Speaker 1: your day job now leading our analysis globally on gas.
[1:57] Speaker 1: So how is weather impacting gas demand in twenty twenty
[2:00] Speaker 1: five and are changing climate patterns likely to have an impact?
[2:03] Speaker 2: So it's really interesting the fundamentals of the gas market
[2:07] Speaker 2: were very much built around is going to be a
[2:09] Speaker 2: cold winter and we're storing gas to meet the winter.
[2:12] Speaker 2: So gas traders and the gas market would really only
[2:15] Speaker 2: just look at the Northern Hemisphere winter season. But now
[2:18] Speaker 2: with changing climate patterns, increasingly gas traders need to be
[2:22] Speaker 2: worried about heat waves, they need to be worried about
[2:25] Speaker 2: rainfall and drought. So it's coming to a point where
[2:29] Speaker 2: actually the summers are becoming more interesting or actually perhaps
[2:34] Speaker 2: even a lot more difficult to predict with regards to
[2:37] Speaker 2: how that's actually going to be influencing the gas market. Now.
[2:39] Speaker 2: Summer is in particular because that's when you're supposed to
[2:42] Speaker 2: be injecting gas into storage to save it for the winter.
[2:45] Speaker 2: But what we've seen some really interesting flips in the
[2:48] Speaker 2: market that in Europe the benchmark price there, the summer
[2:52] Speaker 2: prices are actually more expensive than winter. Now, it's just
[2:56] Speaker 2: markets have gone completely convoluted. To us at the next step,
[3:00] Speaker 2: and it is because of changing weather patterns.
[3:02] Speaker 1: I'm going to speak on behalf of maybe some of
[3:04] Speaker 1: our listeners who are less familiar with gas but are
[3:07] Speaker 1: interested in getting interested in it. So you mentioned a
[3:10] Speaker 1: few things. I mean, one is, you know, gas injections.
[3:13] Speaker 1: I'm just going to tell everyone now, having kind of
[3:16] Speaker 1: been adjacent to gas for arth, that's gas industry speak
[3:18] Speaker 1: for putting gas into storage for later. And then they's
[3:21] Speaker 1: the what's the word when you take it out? What's
[3:23] Speaker 1: the opposite of an injection withdrawal?
[3:25] Speaker 4: An injection and a withdrawal.
[3:27] Speaker 1: It sounds like something much worse because they have an
[3:30] Speaker 1: injection and withdrawal cycle, but that is what the gas
[3:32] Speaker 1: market works on. So putting into storage for taking out later.
[3:35] Speaker 1: And you mentioned cold winters, they watch that and it's
[3:38] Speaker 1: I think that's fairly intuitive why that matters because people
[3:40] Speaker 1: burn gas to keep warm. But why do the hot
[3:44] Speaker 1: summers have an impact and why does drought have an
[3:47] Speaker 1: impact on the gas market?
[3:49] Speaker 2: Excellent question. So when it's hot, you need a lot
[3:52] Speaker 2: of air conditioning, and that air conditioning is very much
[3:55] Speaker 2: powered by gas power generation, especially in a lot of
[3:59] Speaker 2: the big gas economies like the US, places in Southeast
[4:03] Speaker 2: Asia and parts of China and India, these large gas
[4:06] Speaker 2: consuming markets. With regards to the droughts, Now that one's
[4:10] Speaker 2: actually been interesting, and quite frankly, it's caught the gas
[4:13] Speaker 2: market and the LERG market off guard a couple times.
[4:16] Speaker 2: So when you have droughts in regions or in countries
[4:19] Speaker 2: and markets that are actually particularly hydro power dependent, i e.
[4:25] Speaker 2: Power being generated from rain precipitation hydro reservoirs. When you've
[4:30] Speaker 2: got less hydro in those reserves, you've got less power
[4:33] Speaker 2: generation from that source. The quickest thing for you to
[4:36] Speaker 2: be able to supplement that is actually gas generation. So
[4:39] Speaker 2: we found that drought in Columbia and Brazil have actually
[4:43] Speaker 2: led to really huge increases in LNG imports, and that
[4:48] Speaker 2: LNG is actually you know, that energy would have actually
[4:50] Speaker 2: gone to Europe instead for storage during the summer, but
[4:54] Speaker 2: that coincides with the Southern Hemisphere's winter season and that's
[4:58] Speaker 2: actually their peak demand season and for power. So yeah, droughts,
[5:02] Speaker 2: heat waves, in all of these other things. We're even
[5:04] Speaker 2: actually increasingly caring about wind speeds as well. In periods
[5:09] Speaker 2: of low wind speeds, particularly in the third quarter in
[5:12] Speaker 2: the run up to winter. We've actually seen it have
[5:15] Speaker 2: an impact in Europe where economies that have high shares
[5:19] Speaker 2: of wind generation when there's no wind, gas or coal
[5:22] Speaker 2: depending on the market, does come in to fill the gap.
[5:25] Speaker 4: That's so interesting.
[5:26] Speaker 1: It's a little bit like the butterfly flapping its wings
[5:29] Speaker 1: in the Amazon and there being a hurricane in the
[5:32] Speaker 1: Pacific if it's not too rainy in Brazil and Columbia. Certainly,
[5:35] Speaker 1: natural gas prices are more expensive in Europe as a result,
[5:38] Speaker 1: we're living in an increasingly interconnected world when it comes
[5:43] Speaker 1: to energy, even more so than in the past, and
[5:46] Speaker 1: it's because of natural gas in these changing weather dynamics.
[5:49] Speaker 1: So what are the some of the opportunities that arise
[5:52] Speaker 1: from this for the people in the gas market who
[5:55] Speaker 1: are a trading.
[5:55] Speaker 2: Gas Oh gosh, yeah, you'll always find opportunities to make
[6:00] Speaker 2: money's on in this market. But some of the things
[6:03] Speaker 2: that at least I'm looking out for in the gas
[6:06] Speaker 2: markets this year in particular, We're going to go into
[6:09] Speaker 2: a little bit of gas speak here, but the spreads
[6:13] Speaker 2: between the Asian gas price and the European gas price.
[6:17] Speaker 2: Those are razor thin right now. They're less than a
[6:21] Speaker 2: dollar put MMB to you.
[6:23] Speaker 1: For people who aren't familiar, this spread is a fancy
[6:26] Speaker 1: word for the difference in price.
[6:28] Speaker 2: That spread sounds cool.
[6:29] Speaker 4: Yeah, spread sounds cool. It's true. So the spread is
[6:33] Speaker 4: raisor thin. Am I doing it right? Yes?
[6:35] Speaker 2: You are well done. Trader, so those spreads are thin,
[6:39] Speaker 2: so there's not much room to actually maneuver and play
[6:43] Speaker 2: a game of arbitrage between the two different regions. Another
[6:46] Speaker 2: thing that's really interesting now, the average price or the
[6:51] Speaker 2: prices of long term contracted liquified natural gas, which are
[6:55] Speaker 2: actually most predominantly linked to oil. At current prices, they
[6:59] Speaker 2: are actually cheaper than an LNGY cargo on the spot market.
[7:04] Speaker 2: So i'll say that again. So contract energy prices today
[7:07] Speaker 2: are at about ten dollars per mmbtu, at about over
[7:10] Speaker 2: seventy five dollars per barrel if you're looking at Brent. Now,
[7:13] Speaker 2: when that happens, when your contracted long term deliveries of
[7:17] Speaker 2: LERG end up being cheaper than the spot market, they're
[7:20] Speaker 2: going to have a couple of things happen. You're going
[7:21] Speaker 2: to have buyers who are going to want to negotiate
[7:24] Speaker 2: with their suppliers to say, please, please, please give me
[7:26] Speaker 2: more of my contract energy because it's cheaper. And you're
[7:30] Speaker 2: also going to have situations where these buyers who are
[7:33] Speaker 2: sevy portfolio managers and players, they're going to want to
[7:37] Speaker 2: try to sell any excess energy they're not going to
[7:40] Speaker 2: use onto the spot market. Because they're going to make
[7:42] Speaker 2: a huge profit on that. They're going to make a
[7:43] Speaker 2: real margin on that. So we're going to see a
[7:45] Speaker 2: lot of what we call cargo resales potentially, especially for
[7:48] Speaker 2: markets that are really going to need it for storage
[7:51] Speaker 2: injections during the summer or for the heat waves that come.
[7:55] Speaker 4: Got it.
[7:55] Speaker 1: I should also mention you talked about Brent. For those
[7:58] Speaker 1: who are not familiar, Brent is an oil price. It's
[8:00] Speaker 1: an oil price index. It's just sort of something that
[8:03] Speaker 1: I've always wandered about, and now I have the opportunity
[8:05] Speaker 1: to ask you this question in front of an audience
[8:08] Speaker 1: of thousands, So no pressure. I've never fully understood why
[8:12] Speaker 1: there are LNG contracts indexed against oil prices. They're two
[8:17] Speaker 1: completely different things, right, Why is that just out of interest?
[8:22] Speaker 2: Really really good question. It goes back to history. There
[8:26] Speaker 2: are a couple things. It used to be that the
[8:29] Speaker 2: alternative fuel to burning gas was usually some kind of
[8:32] Speaker 2: crude oil derivative, I use some kind of oil product,
[8:35] Speaker 2: So gas used to always be priced of the alternative fuel,
[8:39] Speaker 2: and in this case, it was actually oil products. Now,
[8:41] Speaker 2: in places where it's been gas to gas competition, pricing
[8:45] Speaker 2: that's evolved in the US, in Europe, Asia still the last,
[8:51] Speaker 2: let's say, stronghold of oil gas pricing, but that is
[8:54] Speaker 2: very much for legacy reasons that a lot of these
[8:58] Speaker 2: long term contracts as I was talking about, for legacy reasons,
[9:01] Speaker 2: have still been using oil price linkages. But that does
[9:05] Speaker 2: not actually mean that the two commodities are actually related
[9:10] Speaker 2: to each other. They used to be years ago. Spot
[9:13] Speaker 2: liquefied natural gas prices used to be highly influenced by
[9:17] Speaker 2: oil prices, but now that's very much decoupled. There's very
[9:21] Speaker 2: much gas to gas competition, and because of this global
[9:24] Speaker 2: gas market that we're now in, that link is not
[9:27] Speaker 2: really there anymore. But again for legacy reasons, that oil
[9:31] Speaker 2: link is in the contracts. It's also something that is
[9:34] Speaker 2: easily hedged from a risk management perspective because the financial
[9:39] Speaker 2: derivatives market for rent futures, for these hedging instruments that
[9:43] Speaker 2: can help protect you against the volatility of oil prices
[9:46] Speaker 2: are a lot more established. Banks are a lot more
[9:49] Speaker 2: comfortable with it. The border directors signing off on these
[9:52] Speaker 2: long term energy purchase agreements are a lot more comfortable
[9:55] Speaker 2: with it. So for legacy reason, it still stays in
[9:58] Speaker 2: the gas market, but it is changing.
[10:00] Speaker 1: Yeah, I was just going to ask, So these arbitrage
[10:02] Speaker 1: opportunities you mentioned that exist in twenty twenty five because
[10:06] Speaker 1: of this legacy of indexing against oil. I suppose every
[10:09] Speaker 1: time someone is just making a bunch of money through arbitrage,
[10:13] Speaker 1: there's someone else who's thinking, shucks, I made a bad deal.
[10:17] Speaker 1: You know, I could have signed a better contract. And
[10:20] Speaker 1: so each of these arbitrage opportunities ultimately are what is
[10:24] Speaker 1: going to close the door on this because there's going
[10:27] Speaker 1: to be less and less people willing to sign those
[10:29] Speaker 1: kinds of contracts. So is this something that is not
[10:31] Speaker 1: going to exist for that much longer this type of opportunity,
[10:34] Speaker 1: I think it.
[10:35] Speaker 2: Really depends Tom and I think, you know, depending on
[10:38] Speaker 2: the supplier of LNG. So there have been some suppliers
[10:41] Speaker 2: in the market who have been steadfast against keeping that
[10:45] Speaker 2: oil indexation in their contracts, and there's some such as
[10:48] Speaker 2: US LNG producers, they are adamant on US gas pricing
[10:53] Speaker 2: in the LNG contracts. Now, it's always good to have
[10:56] Speaker 2: a portfolio of your price exposure, so most by will
[11:00] Speaker 2: have a mixed exposure to different price benchmarks. So whether
[11:04] Speaker 2: we'll see that oil indexation go away really comes down
[11:09] Speaker 2: to whether the suppliers will stop using it, whether the
[11:12] Speaker 2: buyers will stop asking.
[11:14] Speaker 4: For prices to be on that.
[11:16] Speaker 2: But in terms of the link it isn't there anymore.
[11:20] Speaker 2: It still fundamentally comes down to in the contracts. This
[11:24] Speaker 2: was just more the common practice now, whether they're willing
[11:27] Speaker 2: to try something new and different, or whether there's going
[11:31] Speaker 2: to be some kind of Asian gas price benchmark that
[11:34] Speaker 2: everybody can rally behind, still really yet be seen.
[11:37] Speaker 1: Another feature of this sort of evolving market that is
[11:39] Speaker 1: increasingly global. I mean for it to even work, there
[11:43] Speaker 1: needs to be ships. And in your reports you're forecasting
[11:45] Speaker 1: an oversupply around twenty thirty of LNG because there's all
[11:49] Speaker 1: sorts of projects coming online. Is there going to be
[11:51] Speaker 1: an oversupply of ships as well? I mean, is you
[11:54] Speaker 1: know the whole picture, is it coming together? Is there
[11:56] Speaker 1: anything that there's going to be not enough of or
[11:58] Speaker 1: too much of?
[11:59] Speaker 4: Yeah?
[12:00] Speaker 2: That is a really fantastic question, because this is something
[12:02] Speaker 2: I particularly find really interesting about this year, the dynamics
[12:06] Speaker 2: in the market, and we started to already see it
[12:08] Speaker 2: creeping in towards the tail end of last year. So
[12:11] Speaker 2: let's put it this way, you can always you can
[12:14] Speaker 2: you can expect the shipping industry to run a tight ship.
[12:18] Speaker 2: So what's happened here is that the big LENG supply projects,
[12:24] Speaker 2: you know, these these are huge billion dollar projects. They
[12:27] Speaker 2: take a while to construct, and they're pretty notorious for
[12:31] Speaker 2: actually having delays. So what's happened now is that a
[12:34] Speaker 2: number of these LNG supply export projects have been delayed,
[12:38] Speaker 2: but the ships that were commissioned and built to carry
[12:42] Speaker 2: that supply have come on time, right. So, and now
[12:45] Speaker 2: the reason the ship the shipping industry really has got
[12:48] Speaker 2: to run a tight book like that is because these
[12:50] Speaker 2: fabrication yards they're booked top. They have slots of people,
[12:55] Speaker 2: you know, who want new LNG tankers, and there are
[12:57] Speaker 2: very few shipyards around the world now who can actually
[13:00] Speaker 2: build LNG tankers. They're really only in Korea and China now,
[13:05] Speaker 2: so limited slots. So they work like clockwork and they
[13:08] Speaker 2: churn out those ships on time. But the projects that
[13:11] Speaker 2: they were built for have been delayed. So we're in
[13:14] Speaker 2: a situation now where there are a lot of LNG
[13:18] Speaker 2: ships on water with less supply to actually carry. So
[13:22] Speaker 2: what happens there is that the shipping rates. The freight
[13:25] Speaker 2: rates for these LNG ships have gone down, they've tanked,
[13:28] Speaker 2: so it's super cheap now to rent an lerngy tanker.
[13:31] Speaker 2: So the thing to watch this year is going to be, actually,
[13:35] Speaker 2: how is the market going to respond to that? Are
[13:38] Speaker 2: they going to do something what the industry calls slow steaming,
[13:41] Speaker 2: which is basically the ships are just going to move
[13:43] Speaker 2: really really really slowly and they're not going to be
[13:47] Speaker 2: in a hurry to get anywhere. Are they actually going
[13:50] Speaker 2: to lay them up, which in the industry means you're
[13:53] Speaker 2: basically just going to a pocket an important turn off
[13:55] Speaker 2: the engine and keep it idle for a bit. Or
[13:57] Speaker 2: what they might even do is they might actually scrap
[13:59] Speaker 2: it them to the graveyard for ships and basically decommission
[14:04] Speaker 2: them and scrap them. It's going to be interesting to
[14:06] Speaker 2: see how the market responds to it, whether they're going
[14:09] Speaker 2: to hold these ships. We're is costing them every day.
[14:11] Speaker 2: You got a crew, you got to pay for fuel,
[14:14] Speaker 2: you got manning, you got all these operating costs of
[14:16] Speaker 2: operating these ships, and you got nothing to ship. So
[14:19] Speaker 2: how are the market, how are the supply is how
[14:21] Speaker 2: are the charterers of these ships going to manage that
[14:23] Speaker 2: fleet is going to be quite in the strength. I
[14:26] Speaker 2: will say, though, as much as some of the industry
[14:30] Speaker 2: is thinking that people might start to scrap the really,
[14:33] Speaker 2: really old lergy ships because they're super inefficient, high emissions
[14:37] Speaker 2: and we care a little less for them, I'd caution
[14:40] Speaker 2: over laying up too many ships because when those projects
[14:44] Speaker 2: actually do come online, those ships need to come in
[14:47] Speaker 2: pretty quickly in order to not have an impact on
[14:51] Speaker 2: prices to have a tight shipping market. Because enough ships
[14:54] Speaker 2: were ordered for the amount of supply that the lergy
[14:57] Speaker 2: market anticipated. It's just a mismatch timing.
[15:00] Speaker 1: Right now, right, So don't go sending your ship off
[15:02] Speaker 1: to ship heaven.
[15:03] Speaker 4: Quite yet, No, not quite yet.
[15:05] Speaker 3: No.
[15:06] Speaker 1: Speaking of the global picture, I want about the geopolitical landscape,
[15:09] Speaker 1: the potential impact of the Trump presidency Europe, Russia. I mean,
[15:14] Speaker 1: for me being based here in the US. I've often
[15:17] Speaker 1: said that for the incoming administration, LNG is their trump
[15:22] Speaker 1: card globally but boom, But I mean.
[15:26] Speaker 4: In particular, I think the US.
[15:27] Speaker 1: This is a central question for the US because there's
[15:29] Speaker 1: so much potential influence that can be wielded. Because it
[15:33] Speaker 1: is the world's largest exporter of LERG now, but just
[15:35] Speaker 1: more broadly, like what machinations do you see happening over
[15:39] Speaker 1: twenty twenty five in relation to LERG, particularly with a
[15:42] Speaker 1: president in the US that is more favorable towards it
[15:45] Speaker 1: than his predecessor.
[15:47] Speaker 2: I'll say a few thoughts or more. I'll ramble for
[15:51] Speaker 2: a little bit, my thoughts on the topic.
[15:54] Speaker 1: That is how you do talk about geopolitics. That's not
[15:57] Speaker 1: used as how anyway. That is conversation about geopolitics. Rambling thoughts,
[16:01] Speaker 1: rambling thoughts. Let's get your rambling thoughts all right.
[16:03] Speaker 2: First ramble is, let's talk about Europe. What's happened since
[16:07] Speaker 2: the first of January. For those who watch the natural
[16:11] Speaker 2: gas markets, Russian gas has now officially stopped flowing through Ukraine. Now,
[16:16] Speaker 2: that's the end of five decades of transit through that
[16:20] Speaker 2: way to get Russian gas to Europe. Next year, we're
[16:24] Speaker 2: anticipating that there's going to actually be a lot more
[16:27] Speaker 2: Russian LNG flowing into Europe. That's for various reasons. There's
[16:31] Speaker 2: already a fear about to Russian LNG flowing into Europe.
[16:34] Speaker 2: There's going to be more with an upcoming transhipment ban
[16:37] Speaker 2: that's going to be happening. But what we've been hearing
[16:40] Speaker 2: from the upcoming Trump presidency is that he wants to
[16:44] Speaker 2: send more USLNG to Europe. Now, the US is already
[16:48] Speaker 2: the largest supplier of ln G to Europe. That is
[16:51] Speaker 2: always going to make the most economical sense, and also
[16:55] Speaker 2: from an operational perspective, it is the nearest major market
[17:00] Speaker 2: that the US can send its LNG. Two, there are
[17:03] Speaker 2: other markets that are closer that could service the Asian market.
[17:07] Speaker 2: It takes a long time to send US LNG over
[17:10] Speaker 2: to Asia, so the most natural destination for US LNG
[17:14] Speaker 2: is in fact Europe. So there's only so much more
[17:18] Speaker 2: US LNG can go to Europe without Europe explicitly saying
[17:24] Speaker 2: that they actually want more gas. Right now, LNG is
[17:28] Speaker 2: just meeting the existing gas demand. You can't send any
[17:32] Speaker 2: more LNG to Europe that it doesn't necessarily need. So
[17:36] Speaker 2: from the US is positioning point of view, if the
[17:40] Speaker 2: US wants to have more LNG export projects, they'll need
[17:44] Speaker 2: to be able to firm up that demand. So I
[17:48] Speaker 2: guess the point that I'm trying to make it is
[17:49] Speaker 2: just that's you know, yes, LNG has come in to
[17:53] Speaker 2: fill a gap that Russian pipeline gas is not filling anymore.
[17:57] Speaker 2: But if you're looking at substantially increasing the amount of
[18:03] Speaker 2: LGY imports that go into Europe, there's got to be
[18:07] Speaker 2: actual fundamental increases in gas demand. I think the biggest
[18:12] Speaker 2: question mark in the gas industry right now, and I've
[18:14] Speaker 2: been saying it for some time now, it's when you
[18:17] Speaker 2: get to an oversupply situation, which everybody's anticipating. Depending on
[18:22] Speaker 2: research house in which podcast you listen to, they're projected
[18:25] Speaker 2: anywhere between twenty twenty seven to twenty thirty where a
[18:28] Speaker 2: new flood of LNG is going to come and that's
[18:31] Speaker 2: going to bring down the price of LERG. And when
[18:33] Speaker 2: things and when gas becomes cheaper again, does it actually
[18:38] Speaker 2: unlock further demand? So if gas is really cheap again,
[18:43] Speaker 2: will you burn more of it? Will you actually stop
[18:46] Speaker 2: burning more of it? And that is actually the demand
[18:49] Speaker 2: that if the US wants to have more LERGY projects,
[18:52] Speaker 2: they need to firm that demand if Europe is their market.
[18:56] Speaker 1: I mean, maybe this is a different way of saying
[18:58] Speaker 1: what you're saying in terms of firming demand, but you
[19:00] Speaker 1: could say that when the market is oversupplied, buyers start
[19:03] Speaker 1: to ask for what they want, and it's not just
[19:06] Speaker 1: the cheapest boatload of energy. And one of the things
[19:09] Speaker 1: that gets talked about is the kind of embedded methane
[19:13] Speaker 1: emissions in energy of different forms, is rather than firming
[19:18] Speaker 1: up demand to become the preferred supplier in a market,
[19:21] Speaker 1: and is the way to become the preferred supplier to
[19:23] Speaker 1: be able to certify and demonstrate.
[19:26] Speaker 4: That your leg is greener than everyone else's.
[19:29] Speaker 2: I think, I mean that is going to depend on
[19:31] Speaker 2: your buyer profile.
[19:32] Speaker 5: Right.
[19:33] Speaker 2: If they want that kind of energy, then they'll sign
[19:37] Speaker 2: up for it. Now, whether they're willing to pay a
[19:39] Speaker 2: premium for it still very much comes to a buyer
[19:42] Speaker 2: appetite of that. I think it's something that the US
[19:45] Speaker 2: can absolutely position itself from a methane intensity perspective. I
[19:49] Speaker 2: think the US has come out as a strong contender
[19:53] Speaker 2: in that sense. It can be lower, So it could
[19:56] Speaker 2: be leverage that the US has all different energies. Suppliers
[20:00] Speaker 2: are touting their own quote green credentials. You've got LNG
[20:05] Speaker 2: plants that are saying, oh, I'm you know, I'm using
[20:08] Speaker 2: completely zero emissions power to produce all of my leg,
[20:12] Speaker 2: so I've got the best lerg or I've used carbon
[20:15] Speaker 2: offsets to offset the entire emissions life cycle of my leg,
[20:19] Speaker 2: so my lergy is better. Or as a supplier of LERG,
[20:23] Speaker 2: you should pay that premium to me for my green
[20:26] Speaker 2: llerngy cargo. So I think there are ways to position
[20:30] Speaker 2: different LERG sources. I think for the US, I do
[20:34] Speaker 2: really wonder more about the implications of expanding the LNG
[20:40] Speaker 2: export industry to a level that's perhaps unsustainable for the
[20:46] Speaker 2: US domestic market. The US gas market is the largest
[20:50] Speaker 2: in the world, but the lergy export gas that is
[20:53] Speaker 2: required is just a.
[20:54] Speaker 4: Fraction of it.
[20:55] Speaker 2: So when you start piling more of that stuff, you're
[20:58] Speaker 2: going to need to get more shale gas out of
[21:01] Speaker 2: the ground. You get more shale gas out of the
[21:03] Speaker 2: ground word to incentivize drillersts to do so, you are
[21:06] Speaker 2: going to need to have some higher prices. There's a
[21:08] Speaker 2: lot of resource in the US, but it's still constraint
[21:11] Speaker 2: because prices are not high enough to merit drilling for
[21:15] Speaker 2: that yet. So with higher prices does actually mean you're
[21:17] Speaker 2: going to get higher domestic prices to a certain extent,
[21:20] Speaker 2: And I guess I do wonder how much the US
[21:24] Speaker 2: is willing to sustain those dynamics, because let's also remember
[21:30] Speaker 2: that there was a time when the US was importing
[21:32] Speaker 2: LNG it was short of gas, and then they very
[21:35] Speaker 2: quickly turn that around. The premise of the US LNG
[21:39] Speaker 2: expot market is also very different when you look at
[21:42] Speaker 2: it from a geopolitical standpoint, if you're thinking about leg
[21:46] Speaker 2: as a trump card for sort of positioning politically in
[21:50] Speaker 2: terms of supplying this critical energy source.
[21:54] Speaker 4: Historically, the way those.
[21:56] Speaker 2: Hydrocarbon relationships used to work with nations and governments was
[22:00] Speaker 2: that it was a point A to B sale and
[22:03] Speaker 2: there was that direct link between important and exporter country
[22:08] Speaker 2: or market. But the way the US LNG export industry
[22:11] Speaker 2: is designed is that most of it is actually sold
[22:15] Speaker 2: at US shores and then the buyer actually takes it
[22:17] Speaker 2: to whatever location they want to do. It's been the
[22:20] Speaker 2: attraction of US LNG is what we call free on
[22:23] Speaker 2: board delivery, which is basically they won't send it to
[22:26] Speaker 2: your home, pick it up from the Gulf Mexico and
[22:29] Speaker 2: have ad it send it wherever you like with permits
[22:32] Speaker 2: from the DOE.
[22:32] Speaker 1: That is so at the moment, if the US doesn't
[22:35] Speaker 1: have the tools to use LNG as a political lever
[22:40] Speaker 1: because the.
[22:41] Speaker 2: LERG will go to whoever is going to pay the
[22:43] Speaker 2: highest for it. So, you know, the LNG is a
[22:47] Speaker 2: very free flowing market where the supply will go to
[22:51] Speaker 2: wherever the demand is and things will get swapped and
[22:55] Speaker 2: traded and moved around. That it's going to be quite
[22:58] Speaker 2: difficult to say, Okay, well I'm going to use LNG
[23:01] Speaker 2: to particularly.
[23:03] Speaker 4: You know, exert this kind of influence.
[23:05] Speaker 2: Exert this kind of influence because those market dynamics are
[23:08] Speaker 2: just going to work themselves out.
[23:11] Speaker 1: Files we're out of time. But this has been a
[23:13] Speaker 1: fascinating conversation. I really think that gas and its importance
[23:18] Speaker 1: is under discussed, and particularly LNG.
[23:21] Speaker 4: It's that a fascinating place.
[23:23] Speaker 1: Even if it's not necessarily going to be the political
[23:25] Speaker 1: lever that we might think it could be, or that
[23:27] Speaker 1: one might think it could be. I still think that
[23:29] Speaker 1: itself is fascinating. So really appreciate you coming in and
[23:33] Speaker 1: talking through all of this.
[23:34] Speaker 4: Thank you for joining us.
[23:36] Speaker 3: Today, Thanks for having me look forward to the next one.
[23:48] Speaker 5: Today's episode of Switched On was produced by cam Gray
[23:51] Speaker 5: with production assistants from Kamala Shelling. Bloomberg. Ne EF is
[23:55] Speaker 5: a service provided by Bloomberg Finance LP And its affiliates.
[23:58] Speaker 5: This recording does not constitute, nor should it be construed,
[24:00] Speaker 5: as investment advice, investment recommendations, or a recommendation as to
[24:04] Speaker 5: an investment or other strategy. Bloomberg ANNIAF should not be
[24:07] Speaker 5: considered as information sufficient upon which to base an investment decision.
[24:11] Speaker 5: Neither Bloomberg Finance LP Nor any of its affiliates makes
[24:14] Speaker 5: any representation or warranty as to the accuracy or completeness
[24:18] Speaker 5: of the information contained in this recording, and any liability
[24:21] Speaker 5: as a result of this recording is expressly disclaimed.

Shows are listed from Apple Podcasts' charts and directory, and Podcast Index where it is used. Every show and episode belongs to its publisher and plays from the publisher's own feed; this site hosts none of them.