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Editorial comment

For several months, ‘Partygate’ has been dominating the headlines here in the UK. Hardly a day goes by without fresh accusations of illegal gatherings within 10 Downing Street – the home and office of Prime Minister Boris Johnson – while COVID-19 restrictions were in place. From Christmas parties and leaving drinks, to birthday celebrations and ‘cheese and wine’ events, it seems that those in charge of making social distancing laws during the pandemic may have been wilfully breaking them at the same time. An internal inquiry is ongoing, and the Metropolitan police has launched a criminal investigation into the matter.

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Needless to say, the allegations have caused quite a storm, while also creating a worrying distraction from a number of major issues that are developing both domestically and internationally. At home, there is a cost of living crisis as the rate of inflation hits a 10-year high, driven by the rising cost of fuel and energy. And abroad, rising tension between Ukraine and Russia is causing anxiety across the world.

In a recent report, Wood Mackenzie suggested that two key determinants of how gas prices will trend in 2022 are the timing of the start-up of Nord Stream 2 and winter weather dynamics.1 The company’s analysis suggests that at current levels of Russian exports and considering normal weather conditions, European storage inventories will fall to a record low of below 15 billion m3 by the end of March. While prices will eventually come down as the winter ends, requirements to refill storage facilities are expected to be 20 – 25 billion m3 more than last year. Wood Mackenzie suggests that the commissioning of Nord Stream 2 could be the only option to refill storage. However, the company’s Vice President, Massimo Di Odoardo, warns that commissioning of Nord Stream 2 could be stopped altogether if tensions between Russia and Ukraine escalate. He adds: “A cold winter in Europe and Asia, alongside continued uncertainty about commissioning of Nord Stream 2, could see prices increase further throughout 2022.”

In its report, Wood Mackenzie notes five other trends to watch out for this year in the global gas and LNG industry. Firstly, the level of oil indexation in long-term LNG contracts is expected to rise, potentially reaching 12% on a weighted average basis. There is also increased momentum behind LNG projects, with 79 million tpy of additional LNG expected to take final investment decision (FID) over the next two years. Thirdly, the LNG sector is expected to focus on CO2 reduction across the value chain going forward, rather than carbon-offsetting. However, the report notes that more capital-intensive projects, including the use of low-carbon power and/or carbon capture and storage (CCS), remain at an evaluation stage. Another trend is likely to see global gas demand remaining resilient in the short-term, although the role of gas in the energy transition will come under pressure as prices remain high. Finally, Wood Mackenzie believes that the use of unabated natural gas in the EU is set to decline, even if the EU classifies investments in gas-fired plants as transitional investments.

It’s clear that the road ahead for gas and LNG remains rocky, and one to keep a close eye on over the coming months.

  1. 1. ‘Global gas and LNG – 6 things to watch for in 2022’, Wood Mackenzie, (January 2022).

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