Europe and Asia have begun a global battle for liquefied natural gas (LNG) supplies. The British Financial Times writes about this with reference to gas traders around the world, who note the growing demand for supplies from both sides.
Japan and South Korea, the world's second and third largest LNG importers, have begun to increase their own supplies in preparation for winter. Rising demand from Asian consumers risks pushing LNG prices to new records as demand in Europe surges as Russia cuts gas supplies to the region to a halt.
“We are witnessing the beginning of a struggle for supplies, which should provide gas for the winter period. This struggle hasn't affected pricing as much yet, but it will happen later, when the late buyer will have to pay for its slowness," the chief executive of an Asian gas company told the publication, noting that demand began to rise earlier than usual.
The publication notes that usually LNG prices in Asia are significantly higher than in Europe, but not in 2022. European prices are already five times higher than last year, and taking into account the aggravation of the situation, including due to the actions of Gazprom, they may still grow. During trading on Friday, August 5, a thousand cubic meters at the largest European hub in the Netherlands cost about $2,050.
Toby Kopson, head of global trading and consulting at Trident LNG, notes that Asian companies usually stretch gas purchases for three months, from November to January, and the terms of these contracts are stable, that is, they are concluded in advance. Now the rules are changing, and the authorities of the countries are starting to get nervous.
“They are genuinely concerned about what will happen in the short, medium and long term. I am sure that this year and early next year we will see a constant struggle between Europe and Asia for gas, which will push prices up, ”says Kopson.
Growing demand for gas in Europe, coupled with record prices, makes this market more attractive for LNG producers. The publication notes that some gas companies have even refused to fulfill obligations to partners with whom they had long-term contracts – the margin for deliveries to Europe will more than outweigh the cost of paying a fine for breach of contract.
China, the world's main consumer of LNG, can partly ease the pressure on prices. The Chinese economy is slowing down, and lockdowns caused by the pandemic have led to a reduction in gas consumption. Given that supplies to China are mainly carried out under long-term contracts, Beijing has begun to resell the surplus back to the market, which slows down prices a bit. However, the newspaper notes, the resumption of economic growth in China may interrupt this process and resume demand for LNG already in China itself.
Changes in the European market have already affected American supplies: if in 2020 and 2021 about 34% of LNG was supplied to Europe from the USA, then in the first four months of 2022 alone, the share of the USA soared to 74%, which, most likely, will affect the volume of supply in Asia. The FT notes that South Korea and Japan are likely to cope with price spikes, while other countries in the Asian region may have serious problems.
The sharp rise in gas prices in Europe is associated with the actions of the Russian Gazprom, which refuses to restore the capacity of pumping gas to Europe through the Nord Stream pipeline until gas turbines are removed from sanctions. European politicians believe that Russia intends to use the gas for blackmail, Russia denies all accusations.