IEEJ：November ©IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (611)

November 16, 2022

Participating in GIIGNL General Assembly Meeting in Paris
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn November 14-15, the International Group of Liquefied Natural Gas Importers, known
as GIIGNL, held its general assembly meeting in Paris. Attending the first face-to-face GIIGNL
general meeting in three years, following online meetings under the COVID-19 crisis in the previous
two years, were top executives of Japanese and other LNG importers. I only had the opportunity toparticipate in a panel discussion titled “LNG: Remedy to the energy and climate crisis?” on the firstday of the meeting. At the conference that came in Europe at a time when European gas price spikes
and market destabilization were attracting global attention, I heard various interesting arguments about
the future of LNG. In the following, I would like to comment on two impressive points regarding theGIIGNL meeting.
First, I reaffirmed the existence of various destabilizing factors regarding short-term LNGmarket challenges. As Russian gas supply to Europe through Nordstream pipelines declined
substantially, a key European gas price benchmark soared in August to close to $100 per million British
thermal units, or nearly $600 per barrel of oil equivalent, amid concern about a potential gas crisis
toward the coming winter. In line with European gas price spikes, Asian spot LNG prices shot up,
leading the destabilization of the gas/LNG market to loom as the biggest challenge in the internationalenergy situation.
Until early November, however, temperatures in Europe remained relatively higher, leadinghigh prices to suppress gas consumption. As a result, European gas inventories have come close to thestorage capacity limit, prompting gas prices to fall back to around $30/MMBtu. Even this leveltranslates into nearly $200/bbl of oil equivalent, indicating a high price. However, the fallback has led
market players to expect that critical gas shortages may be avoided in the coming winter.
However, talks at the GIIGNL meeting indicated that we should not be optimistic but keep
close watch on future market developments. Gas prices may shoot up again in the coming winterdepending on low temperatures or additional gas/LNG supply disruptions. Even if a crisis is avoided
in the coming winter, the supply-demand balance in the European gas market in 2023 could be tighter
than in 2022. As Europe dips into gas inventories now close to the capacity limit in order to tide overthe coming winter, inventory levels early next spring may be far less. The 2023 European gas market
may have to start with low inventory levels. Given the current gas/LNG market, it may not be easy for
Europe to pile up gas inventories toward late 2023. The supply-demand balance in the European gasmarket and in the international LNG market could tighten from 2023 to 2024.
In such situation, future Chinese LNG imports were cited as an uncertain factor at theGIIGNL meeting. In 2022, LNG imports in China slowed down due to economic deceleration,
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IEEJ：November ©IEEJ 2022
allowing some LNG to flow into the European market. The Chinese gas demand slowdown came as ahelp to the European market. If China’s LNG demand expands again as seen until 2021, the globalsupply-demand balance may tighten dramatically. The current economic stagnation in China is
attributable to the zero-corona policy that is unlikely to change easily. However, the Chinese economy
has the potential to grow again next year. We will have to closely watch the Chinese economic trend
and its impact on the LNG market.
Furthermore, the GIIGNL meeting left me impressed with a strong feeling that Europe isgreatly ambitious and willing to procure LNG from the global LNG market if necessary for its energy
security. My impression was that Europe has positioned itself as a premium LNG buyer that purchases
LNG even at high prices, being determined to race with other regions in the world to obtain LNG
supply. As the global gas supply pie shrinks due to a Russian pipeline gas supply decrease, a zero-sum
game race to obtain LNG may intensify in the global LNG market in and after 2023. Depending on
LNG demand in China and in the whole of Asia, the global LNG supply-demand balance may tighten
dramatically. Such tightening supply-demand balance and subsequent price hikes may deal a severe
blow to developing and emerging countries that cannot afford to pay high prices for LNG. Sky-highprices resulting from an intensified race to obtain LNG may impede developing countries’ access togas/LNG and exert serious economic impacts on them. Given this point, developing countries can beviewed as among those that have been hardest hit by the international energy market destabilization
triggered by the Ukraine crisis.
Second, various arguments were made at the GIIGNL meeting on the medium to long-term
future of LNG, indicating hopes and challenges for LNG’s roles. Most importantly, it was noted thatefforts to phase out dependence on Russia and enhance energy security amid the escalation of theUkraine crisis could accelerate decarbonization initiatives, pushing down gas and LNG demand overa long term. In the panel discussion in which I participated, the International Energy Agency’s World
Energy Outlook 2022 was introduced, indicating that the IEA has sharply lowered its global gas/LNG
demand projection from the levels in its previous projections. I think that the latest IEA gas/LNGdemand projection strongly reflects the current perception in Europe.
In response to the IEA outlook, I referred to the IEEJ Outlook 2023 of the Institute of Energy
Economics, Japan, and built on market realities to forecast that global LNG demand would remainrobust over a long term and increase by 13% from 2020 to 2050 in a scenario where cutting-edge
technologies would be introduced to the maximum extent to tackle climate change and enhance energy
security. Regarding Asian emerging countries, particularly, I argued that gas/LNG would remain a key
energy source and that a two-stage approach using gas would be effective for promoting
decarbonization. In fact, however, the current high gas/LNG prices are destined to impede soundmarket development. It is indispensable to secure investment in supply expansion to change the current
supply and demand environment. A prospect that LNG investment will not lead to stranded assets isrequired for expanding investment. In this respect, long-term LNG procurement contracts may play a
key role in recovering investment. This point was made frequently at the GIIGNL meeting. Regarding
the important long-term LNG procurement contracts, there are the impacts of electricity and gas
market liberalization, the future course of renewable energy and nuclear, and other various factors thatmake it difficult to make decisions. At the meeting, I felt that energy policy planners and LNG-relatedindustries would have to frontally tackle the investment issue and share wisdom to solve problems.

2Contact: report@tky.ieej.or.jp
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