Trump looms as geopolitics hots up

The prospect of Trump returning to the White House could shake up the global gas market already on edge from rising tensions in the Middle East. Listen to a discussion about how Trump could reverse President Biden’s pause to LNG projects. Also, the pod highlights why Chinese and German gas demand is returning close to pre-pandemic levels and what this means for imports to Europe as it continues to shun Russian supply.

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel
Guest: Nadia Martin Wiggen, Director, Svelland Capital. 

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:06

Hello listeners and welcome to the Montel Weekly Podcast. Bring Energy Matters in an informal setting. In today's pod, we will again turn our attention to the global gas market and geopolitics. I know we've discussed this already in depth in previous episodes, but the topic is so timely and important that I think it's worth revisiting our gas market participants complacent about the worsening crisis in the Middle East, or have all scenarios been priced in. Are we on the brink of another energy crisis or has the situation. Been over Exaggerated helping me, Richard Sverrisson to discuss these matters and the current state of affairs in global gas markets is our old friend Nadia Wiggen now of Svelland Capital, a warm welcome back. Nadia.

Nadia Martin Wiggen, Director, Svelland Capital: 0:51

Thank you very much. Great to be back.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:54

Now I think before we go into depth about certain issues that I've, that I mentioned in the intro, Naly I'd like to talk more generally about, about the gas market in Europe. What are the main drivers.

Nadia Martin Wiggen, Director, Svelland Capital: 1:07

Number one right now is the inventory level in Europe and entering this winter, we had very high inventories. We have finally now in February, dipped below the 70% inventory level, despite some cold snaps. And this is when the market can actually start to move, you know? When we're below 70% inventory levels, you start to also lose efficiency in your drawdowns on how much gas you get out. Critical levels, of course, are when we drop even lower and this is where we finally see that potential to have a tightening up.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:42

But we're coming to the end of winter, are we not? In some parts of Europe, it doesn't feel like that. We're recording this in Oslo and it's minus 15 outside, but in other parts of Europe it's been quite, quite a mild winter again, so we've been quite lucky in that respect, wouldn't you say?

Nadia Martin Wiggen, Director, Svelland Capital: 1:55

And Absolutely. But always the effect in terms of natural gas comes when it's a prolonged winter. Right When you're at full storage and then it's cold, it doesn't really matter. It's when we're starting to draw down that storage where we have this difference. And when we think about what has happened in the market in particular, you know, in the peak of winter this year in particular, we had a lot of l and g vessels held by traders sitting off the coast of Europe. Waiting to refill that storage. We have finally drawn down that floating storage. And now the spot market is actually starting to move. So we've lost that buffer and now we're starting to really draw down the storage.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:37

I mean, you mentioned LNG imports into Europe. We've seen. Would you would it be fair to say that there's been a glut o of LNG coming into Europe and this is likely to continue over the coming weeks and months?

Nadia Martin Wiggen, Director, Svelland Capital: 2:48

I would say a glut is overstating it. I would say we've been over prepared relative to the weather. On a historical basis. And that is why we're, you know, TTF has been trading below 30. When we saw that happened during this past summer, as in summer of 2023, traders actually diverted cargoes that were due to arrive here. So six cargoes that were meant to arrive didn't. And then that caused a spike in natural gas prices because everyone had expected in their balances for that to come in. It was at the same time as field maintenance. And then that was exacerbated by the potential strikes in Australia. But really the first mover was the fact that we didn't have those arrivals of LNG cargoes, and this is where we are now in terms of the Red Sea.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:36

Exactly. Yeah. So we'll get to the Red Sea issue a bit later, Nadia. But in terms of LNG imports into your what are your expectations for the coming weeks and months? You know, we are saying, okay, inventories are being drawn down. There's a bit of a cold snap around certain parts of. Nor Northern Europe in particular. But what's the outlook for the months ahead?

Nadia Martin Wiggen, Director, Svelland Capital: 3:55

Well, so normally we would start to refill storage but the impact of the Red Sea is starting to have an effect. So when initially, LNG cargoes, were not going to travel through, the Red Sea Qatar just stayed a moratorium that they're not moving those cargoes, and part of that has to do with the fact that they have long-term contracts and they are destination specific. So the European contracts were just halted and we saw that cargoes didn't arrive, that were due to arrive into Europe. Now this week we've started to see some diverted, the first diverted arrival, but that adds quite a lot of travel time. And that requires more ships. So now Qatar is in this situation that they have to decide if they're actually going to book additional LNG vessels in order to fulfill these deliveries to Europe. Qatar is not a training company like Vito Traffic Gear Equinor. In terms of how they do things. They just book the vessel and then that's it. It's meant to deliver. So they're not as flexible in terms of their fulfillment of contracts. Having stated that, if we look at the historical average of the last five years, only about a 74, 70 5% of contracted LNG. To Europe actually arrive. So we're still taking that into account. So it's not that a hundred percent is due to arrive. Even if we take that 74 to 75%, it still means they need to book more vessels. And when we look at the timeliness of this week. We've seen that physical markets start to fly because we haven't had new deliveries, as in brand new LNG vessels come into the market this week. And now that bidding has really started up on those physical desks. And it's not only about Qatar in Europe, it's also about Asia. It's also about. The US and this is where, we're finally getting this situation in natural gas through LNG, where these markets are more liquid and more connected than they have been historically.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:01

So this is the bidding war between different regions of the globe. For these, primarily these Qatari to cargoes, right?

Nadia Martin Wiggen, Director, Svelland Capital: 6:08

It is in it's more about needing the ships to transfer the Qatari natural gas, the LNG, but also for the US because the US in the short term has been of course delivering more to Europe. But this is when we look at kind of the expectations for this year in terms of year on year growth, it's only around 4% additional. Export growth year on year outta the US expected this year. And that is because they've hit that kind of export capacity level. And so even if they go at max, it's only 4% higher year on year, we start to see that accelerate again in the coming years. So it is about all the basins together and when we think about the demand side, this is where China. Yeah. If we think of last year, right? The number one kind of bearish story for most of the year was at China is on the brink of collapse. Things are going very poorly. Second most popular for the first half of the year was, is the US going to enter a recession? Both of which have been proven to be false in our view, when we look not only on natural gas, but when we look at oil, right? Crude oil imports into China last year were 1.2 million barrels per day, higher than 2019 levels. China is back when we look at the metals market. They've changed how they're treating inventories so that it's just in time inventories. But when we look at iron ore and we look at copper, they're very low inventories, but things are really moving. And this is where we're starting to see that upswing. The biggest laggard has actually been, in terms of l and g. So we saw a drop off in LNG imports in China of 20% with COVID. And we're only 10% back as of last year. Now we're starting to see that accelerate. So this is where we really see things improving on that side. And it's not only China, it's the surrounding non. OECD, Asian economies as well that are actually improving and they're driving that LNG demand. They're driving that oil demand and they're not, because natural gas prices aren't where they were, in the peak of this conflict, it's much more affordable for them to, again. buy LNG. The n it's an option for them.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 8:26

The nano ECD countries, such as where Vietnam or Pakistan, those kind.

Nadia Martin Wiggen, Director, Svelland Capital: 8:29

And Vietnam in particular is absolutely going from strength to strength. And this is, when we think about which part of the sectors, you know, it's ai, it's renewables. All of these sorts of things are really flying in China and also in the surrounding countries. And when we think about, the semiconductors situation and the, the trade war that Trump really started, it's now, you know, these other countries that wanna get involved, Japan wants to get involved. And so it is this kind of diversification. So it's not just about China and Taiwan, it's these additional surrounding countries that want to get involved in all of this is. Super positive in terms of energy demand. And this is where natural gas and LNG is a critical part of that.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:15

If I understand you correctly, Nadia, you'd say 2024 is the year when China will come back. Big time in terms of LNG demand and as the industry in the country picks up compared to what it has been over the far past few years.

Nadia Martin Wiggen, Director, Svelland Capital: 9:26

Yeah I think we can't just think of in terms of calendar years.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:29

Okay. Okay.

Nadia Martin Wiggen, Director, Svelland Capital: 9:29

Because this is where, when we think about winter, right? Yeah, sure. So this is where we're starting to see that real improvement and I think that will continue to happen through next winter.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:41

So it's more, it's more seasonal than in, in terms of Yeah, it's more January to December. It's more, in terms of winter, summer.

Nadia Martin Wiggen, Director, Svelland Capital: 9:47

Yeah. Yeah. But we will also see, less of this fall off I think in the summer as well.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:52

And what does that mean then, in terms of, we

Nadia Martin Wiggen, Director, Svelland Capital: 9:54

also use it in terms of cooling, right?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:56

Of course. Absolutely. So

Nadia Martin Wiggen, Director, Svelland Capital: 9:57

that is, if it's a hot summer. That definitely also impacts things, but it's that industrial side I think is really picking up.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 10:06

That's very interesting. Let's stay with demand for the time being the night and what's hap what's happening in Europe? What are you seeing on the demand side in Europe and certainly some of the biggest economies in Europe.

Nadia Martin Wiggen, Director, Svelland Capital: 10:15

This is where in Germany in particular has really struggled right. Since COVID and when we look at last year, we still saw. 20% less demand year on year in terms of the power market feeding in directly into gas demand. We're finally now in January, meaning in the last month, seeing that Germany is back in terms of gas demand. Versus where we were pre COVID. And when we look at the decks, it's historic highs. So things do not look recessionary and as terrible as behavior has suggested in terms of that industrial sector, the next catalyst to move things higher in terms of gas demand in Germany. Is China because of the export of, German goods, manufactured goods into China. And this is again, where we see that catalyst improving and we expect that to continue moving higher. And so that will make a big difference.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:17

So what does this mean for for the competition at a global level between, China, Northeast Asia, even Asia more generally and Europe. So will European consumers, will European market participants have to pay much, much more for that? For the for the LNG and for gas?

Nadia Martin Wiggen, Director, Svelland Capital: 11:34

Well, not necessarily much, much more. We've seen huge spikes in prices and right now, as I said, tTF below 30, it is a low price, and if that's inflation adjusted, it's like the low twenties. So things are much more improved. And when we look at what's happened in the US right, in terms of as a, an exporter of l and g, we. Seen a real drop off in the last two weeks in Henry Hub prices. So it's more that we're now in these price levels where it can drive demand. And we're not near these kinds of spikes where it, it hits demand. And, when we think, EOR presented they had their capital markets of update this week. They. Have much lower gas price expectations going forward. For the coming years. And so this is where I think we, we've hit the, this new situation where, okay, now we can start to have demand come back. We don't need to have these massive price spikes because we're adjusting.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 12:37

But this week again, some of, you've seen the results being presented by the global oil and gas major, total energies. They also said that they expect Chinese demand to really push and squeeze the market globally. I think if we then move to some, what's happening currently in the Middle East, that's isn't is that the situation there, if it does escalate, if it. Creates, becomes a wider military conflict. What does that mean for, not only the LNG cargoes and shipments to Europe and to other parts of the world, but also for production in the region because it's quite a booming gas production of the of the coast, of Egypt and Israel.

Nadia Martin Wiggen, Director, Svelland Capital: 13:17

I think the first thing that happened when this conflict started was that, Israel shot on other gas fields. So that was the immediate impact. Since then, in terms of production, there hasn't been an impact. But in terms of transit there has. So I think the first question is, before we talk about escalation or cease fires, is about duration. And the longer this lasts, the greater the impact. And the market was actually a little bit lucky in terms of the timing. On the one hand you can say it was going into winter, so is that lucky? But what I mentioned about these traders having all these cargoes of l and g sitting off the coast of Europe, that made it very lucky in terms of timing. Now we're finally hitting the point where that impact comes. So if this lasts through the end of the year. We see a massive impact, right? Because that means everything going out of Qatar coming outta the Middle East has to have this additional impact, right? These additional sailing days. And so then this is where, the impact in terms of percentages of ships becomes much longer lasting. On the other hand, we've seen in the last week big discussions of ceasefire. And, the crude price came off last week, $3 as soon as it came out that maybe there would be a ceasefire. Interestingly, as we get seem to more concrete points on these talks, crude hasn't come off, very interesting. It only comes off, it seems, when the US is actually bombing things like on Monday. So things are working in a very in the short term, in a. Not necessarily the most logical way. On the other hand, when we talk about escalation, one thing in our view is quite clear, the us Iran, Saudi Arabia, do not want an escalation. Because a closing of the straight of our muse would be absolutely catastrophic to the global economy and flows. So they are trying to do everything they can to prevent that. However, if that were to happen, you know, it's off the chart pricing for the entire energy complex. So they're trying to do everything they can to avoid that. But I think what is happening right now is there have a. A chance to negotiate what they actually want. It's about Saudi Arabia. Okay. You have to recognize Israel formerly. Which is where we were before. We literally were there on October 6th before the attack happened on October 7th. So these things are back on the table, and that's why I think the ceasefire talks are taking a bit longer because everyone says, okay, things are quite hot now. So we can actually get our playbook across in these negotiations, and that's why they're taking quite a bit longer.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 15:55

Do you think the risks of an escalation or of a wider conflict have been underestimated?

Nadia Martin Wiggen, Director, Svelland Capital: 16:03

Absolutely. When we look at how the prices are trading on oil and natural gas, the assumption, the only thing that's moving the market is actual outages and halts, right? So this is where we've seen the shipping markets really affected. We've seen gas oil. Really affected because right now it's refinery maintenance season in Europe in the us so all of these cargoes that would normally flow from the Middle Eastern refineries to fill that demand, they now have to go around the Cape of Good Hope. That's where we've seen the impact. And it's on the shipping prices and it's on gas oil. No one is thinking about the fact that, oh, something might happen. And, the crude market had argued that wasn't priced in, and then we traded down $3 last week and now it's really not priced in. So that risk and I think that this is something that has really changed. It's about this just in time mentality. On metals, on, on crude, on natural gas. And so we're looking at this so long as we have inventories to cover things as we need right now. We're lackadaisical about it.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 17:14

Yeah. So if something big does happen, then prices will move, but not really before something major does occur. Let's talk a little bit about, what's happening in the US as well, Nadia? We've seen Biden, the Biden administration step back a bit from LNG projects. What's that all about?

Nadia Martin Wiggen, Director, Svelland Capital: 17:32

Yeah, so the US has, a three step permitting process for LNG exports. And the critical point that is being paused now by the Biden administration is that they're not going to issue, the Department of Energy is not going to issue a. Export permits for non-free trade agreement countries until they assess the environmental impact on the globe. Right? And this is critical because these non-free trade agreement countries are Europe, they're Turkey, they're China, and those are the main purchasers. When we think about it from a geopolitical perspective, the timing of this. Is really difficult to stomach because the US has been telling Europe, we will provide natural gas for you to step away from Russia. Now this is directly impacting that relationship with Europe, of course. In terms of when this would have an effect, we're talking about 28, 28, 20 29. In terms of supply and demand, because of how long it takes. For these for the infrastructure and not for the actual production to come online, but this about that long-term agreement. And so it's basically pushing Germany back into Russia's arms if they were to actually follow through on this. But of course the key wording was, it's a pause on the permitting. So there are two lobbies or groups that benefit from this. Number one, which is what the Biden administration talked about officially, was the environmental group, the environmental impact of having more LNG in the world versus potentially renewables. This work, carbon capture comes into it, things like that. The other lobby and that's a little bit strange, I would say, in terms of where we are in the election year with the Biden administration, because this really, yeah, the environmentalists were never gonna vote for Trump. And then where these LNG, the impact is it's in states like Texas and Louisiana, which we're gonna go for Trump. Anyway. The other lobby that benefits from this is the US manufacturing lobby, and these are more important states, when we think about the rest states and things like that. And what we've seen is since this announcement is the Henry Hub price has plumed. So it's. Building America's competitive advantage. To have cheap energy prices to maintain manufacturing, so then you can still potentially pay higher wages because you don't pay anything for energy and that is where it is a bit of a win. The problem with it being politically motivated is that if that is the case. It suggests that this pause is not going to be, undone until after the election, which sets back the market a year. It also, you have certain projects that have already been approved and have permits, but there's a seven year maximum. So if you're not up and running within those seven years, you have to reapply. So it puts a, pushes a gas on some of these projects that are under construction to get everything up and running this year. But on the other hand, it can create, create a bit, little bit of this kind of a lag when we think about the s and d balances, though for natural gas, the timing of 20 28 29 isn't bad because that is, starting. Yeah. But that is when we're also getting additional natural gas out of Qatar. That's already starting end of 2025 and that continues each year.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 21:14

So it wouldn't be, would it be right to say it's an isolationist move then as well?

Nadia Martin Wiggen, Director, Svelland Capital: 21:19

Absolutely.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 21:20

Yeah. Yeah. You mentioned,

Nadia Martin Wiggen, Director, Svelland Capital: 21:21

but it really counters the strategy in terms of Nato. And this is where, if we think about the change in administrations, the Trump administration was, from the beginning, Trump was the one calling out, NATO and Stoneberg and saying, why are you building these gas pipelines? With Russia, when we're supposed to protect you from Russia and energy security is a different thing. Trump has always been pro the US providing natural gas to LNG, to Europe instead of Russia. Biden has been super supportive of Ukraine. He also doesn't wanna push Germany back for Ukraine sorry, Germany, back towards Russia. So this is where it's extremely unlikely that this would actually be maintained for more than this one year pause.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:08

I mean, you mentioned Trump. I mean it looks like where we are at the moment that there's gonna be a return of the Trump presidency. We dunno what, there's a long way to go yet. But what would this, would he end this pause on LNG products? Do you think were or a Trump administration, would that would that mean more exports of the fuel?

Nadia Martin Wiggen, Director, Svelland Capital: 22:25

Yeah I think he would be very pro that. And this is about really developing that industry. There's a lot of potential in the US in terms of growing natural gas supply and building out that infrastructure. It is a lot of jobs, so it doesn't have to be one versus the other, just because there are exports that it dries up prices. The US used to not allow crude to exports, right? And now the US is in this situation that they're really standing up. To opec and this is what they should be doing in natural gas. A hundred percent. So this is just a temporary move in our view.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 23:03

Interesting. I think. But what you are saying about the potential for German and Europe being pushed back towards Russia in terms of imports of gas. Is that ever gonna be likely given what's happened in the last two or three years? Given the Ukraine crisis, the war nor stream two being, being blown up. Is that. Any way back to Russia for Europe and for gas deliveries.

Nadia Martin Wiggen, Director, Svelland Capital: 23:24

I, unfortunately it is entirely possible, and I think this is where the German elections will be critical because there is definitely a part that believes that this is the future because it's Germany is so dependent on cheap energy or that manufacturing model to work. And this is where they're also, looking at alternatives beyond natural gas in the renewable space. We look at the North Fault deal, right? 5 billion, that is a lot of money. And that is to have that capability within Germany, so they can have. Control of it in terms of batteries and so forth. So they are absolutely investing in this infrastructure and I think they're pragmatic. And they all options are on the table and zero. This is also a negotiating tool with the us absolutely. They have this threat, so you need to protect us. Or we will,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:19

and this week, the German government announced these big ambitious plants will put a number on the amount of gas plants that they want to build off. They call them hydrogen ready gas plants. But in effect, they're gonna be, they're gonna be burning gas as a fuel. So there is, the country needs gas, and if it's not gonna come from the states, if there's a pause on that, then it needs to come from somewhere.

Nadia Martin Wiggen, Director, Svelland Capital: 24:38

Yeah. And it's especially strange because, europe hasn't wanted to sign long-term gas contracts. And with Middle Eastern fliers, that is the way you do it. In the US In some cases you can, but they're not, the US is much more open to the spot market, spot trading, sending cargoes, wherever they may be. This is where the impact of China's comeback. They were the biggest spot buyer and really changing things and then they. Haven't been in the spot market. Now they're coming back and this is where you start to see that impact. It's very strange for Europe not to have that strong relationship with the US LNG market, because that's how they want to operate on both sides.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 25:19

Absolutely. We are running out of time now Nadia, but I feel we can discuss this for hours, but in, in terms of an energy crisis, are we on the brink of another energy crisis or, you mentioned that people are getting a bit more complacent that things aren't really priced in. If something really does move we could be. We could be in, in a very precarious situation quite quickly, could we not?

Nadia Martin Wiggen, Director, Svelland Capital: 25:40

Absolutely. Things heating up in the Middle East is a big impact. I think when we look at crude, the US production has really saved the day there, and expectations for that to continue that could really help things. On the margin, of course, the Middle East is sitting on spare capacity. That's why we don't see a steeper backwardated curve in oil. But if we lose that's a big impact. I think on natural gas, same thing. This expectation that everything will be fine flowing outta the Middle East when we see those impacts. And let's not forget, you know, last year. We were looking at potential strikes in Australia. Taking out tons of natural gas supply. So that is, I think when we see things are improving in terms of demand, we can definitely hit this situation where things get really tight very quickly and then we cannot handle a crisis of supply. This feeling that we're just in time on commodities, inventories, and everything. We'll create more volatility and more spikes when there is unrest. And wars are the top source of unrest.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 26:47

Well, fingers crossed. Let's hope for the best and hope that really things don't escalate in the Middle East. Because then I think we're all in trouble. But Nadia, thank you very much for being a guest on the Montel Weekly podcast. As always!

Nadia Martin Wiggen, Director, Svelland Capital: 26:58

Thank you. My pleasure.