Trafigura Predicts High Demand for Gas in Europe

Trafigura Group has warned that Europe will need to import large volumes of liquefied natural gas next year to make up for reduced Russian supplies. The commodities giant said that Russia's gas flows have been severely curtailed in recent months, leaving Europe facing a potential shortfall. Trafigura said it is working to secure additional supplies of LNG to meet Europe's needs.

To attract LNG away from other regions, gas prices in Europe will need to remain elevated, a trading house said in its annual results. Security of supply will remain an issue beyond next winter.

Trafigura has warned that gas and LNG markets are likely to remain volatile in the coming years. Europe is expected to need to import large volumes of LNG in 2023 due to a reduction in flows from Russia, but should be able to avoid a blackout this winter by drawing on inventories and cutting demand.

LNG imports are already at record-high levels, helping Europeans to heat their homes after Russia curbed pipeline-gas supply to a fraction of normal levels. US LNG has filled most of the gaps, with more import terminals set to open across Europe over the coming year. This increased reliance on US LNG is likely to continue in the short-term, as Europe looks to diversify its gas supplies.

"US LNG is destination-flexible and has answered the call," Kristy Kramer, vice president for gas and LNG research at Wood Mackenzie Ltd., said in a note Thursday. Two-thirds of all US LNG cargoes will land in Europe this year, and more would come if it were not for capacity limits at import terminals.

In 2022, Trafigura traded 13 million metric tons of oil equivalent, down from 14 million tons the previous year. Natural gas volumes remained relatively unchanged at 23.7 million tons. In addition to delivering the gas, the trading house also stored the fuel in leased storage in preparation for winter.

After futures exchanges and clearing brokers raised margin requirements, liquidity in physical and financial markets was reduced, Trafigura said. This substantially increased the cost of moving cargoes and also caused an explosion at the Freeport LNG terminal in the US, where Trafigura has an offtake agreement. This removed LNG and significant flexibility from our portfolio at a time when the market needed them most, it said.

Freeport LNG has been delayed several times, with the most recent timeline indicating that operations will resume at the end of the year.

"Despite the challenges posed by the loss of Freeport volumes, our large-scale operations meant that we were able to substantially mitigate any issues for our end buyers," Trafigura said. "We continued to ensure safe and reliable LNG supply."