European countries destabilize global LNG market and reduce energy security worldwide

The Gazprom Board of Directors took note of the information about the development prospects of the shale gas and liquefied natural gas (LNG) industries around the world, as well as opportunities and threats facing the Company.

It was noted at the meeting that, as in the past, most of shale gas production is concentrated in the US. Gas production in other countries – China, Argentina and Canada – forms a very small proportion of the global range.

The year 2022 has shown that, even under favorable economic conditions, the US failed to increase shale gas production rapidly. Moreover, not a single new shale gas field having substantial production volumes has entered development phase in said country in the past five years.

As for the other countries, no major increase in shale gas production is expected in a long-term perspective, whereas the amounts currently produced cannot have any influence on the global gas market.

The global LNG industry has undergone significant changes as a result of the growing demand in Europe, which has entailed a destabilization of market and growth of gas prices. For instance, in 2022, for the first time in a long while European prices developed a substantial premium compared to the Asian LNG prices. Under these circumstances, some suppliers violated their obligations under long-term contracts and rerouted LNG tankers to Europe, thus evoking crisis situations in some countries of the Asia-Pacific region. For instance, as a result of such actions, the authorities in India were forced to introduce gas rationing for fertilizer manufacturing companies and other industrial consumers. Nevertheless, in a long-term perspective, Asia-Pacific is going to account for the bulk of the growth in the demand for LNG.

Record-high prices for gas worldwide have not led to the increase in the number of final investment decisions (FIDs) on new LNG capacities. The number of LNG projects on which the FIDs were made in 2022 corresponds to the annual average for the last decade. Implementation of new LNG production projects is additionally constrained by the unwillingness of buyers, primarily European ones, to enter into long-term contracts. The majority of investors and buyers are not ready to undertake risks against the backdrop of the uncertainty and volatility of the gas market.

The Management Committee was tasked with continuing to evaluate the development prospects of the shale gas and LNG industries around the world.