Europe braces for LNG tug of war with Asia

{"text":[[{"start":6.6,"text":"A global tug of war for liquefied natural gas cargoes threatens to catapult prices even higher as Europe needs to secure more supplies than usual for the winter and buyers in Asia are willing to pay far more than in the past."}],[{"start":20.26,"text":"The price of LNG has already reached multiyear highs, having more than doubled since the outbreak of the US-Iran war. Platts JKM, the Asian benchmark, reached almost $30 per million British thermal units in mid-September, and traded at $25.29 on Friday. Deliveries of the fuel to Europe were at $24.62 per MMBtu, according to Spark Commodities."}],[{"start":45.68,"text":"While prices remain far below the peaks reached after Russia’s full-scale invasion of Ukraine in 2022, analysts warn that competition for cargoes could escalate in coming months as developing countries in Asia that were priced out of the market during the last crisis are now more willing to pay up to limit damage to their economies."}],[{"start":64.4,"text":"This could push up prices even further for European buyers as the EU prepares to enter the winter months with the lowest gas stores for at least 15 years."}],[{"start":73.54,"text":"The willingness of these so-called price-sensitive Asian buyers to pay more rather than risk shortages amounts to a “fundamental shift in the gas market”, Takayuki Ueda, chief executive of Japan’s Inpex Corporation, told the FT."}],[{"start":86.76,"text":"“India and Pakistan seem to be very accustomed to price volatility now,” he said. “They still have a lot of enthusiasm to buy,” he said."}],[{"start":94.48,"text":"“We have seen both Pakistan and Bangladesh buy multiple LNG cargoes at $25 per MMBtu. We didn’t see that in 2022,” said Martijn Rats, analyst at Morgan Stanley. At such prices those countries “had already left the market” during the last crisis “and this means that Europe will need to pay even more” this time around, he warned."}],[{"start":null,"text":"

"}],[{"start":115.76,"text":"Developing countries in Asia have few options to further reduce their gas demand, having already cut consumption as finely as possible since the start of the US-Iran war, causing rolling blackouts in some."}],[{"start":126.88,"text":"Many countries on the continent, including advanced economies such as South Korea and Japan, have also increased their use of coal, but energy executives say there is little scope for more fuel switching."}],[{"start":138.4,"text":"“Their ability to compensate for constrained [LNG] supply is real, but not infinite, and I think that’s going to be the test going forward,” Liz Westcott, chief executive of the Australian oil and gas group Woodside Energy, told the FT."}],[{"start":152.96,"text":"In Europe, there are also few easy remaining options to reduce demand."}],[{"start":157.58,"text":"Demand was already dented before the US-Iran war brought shipping in the Strait of Hormuz to a near standstill, tightening global supplies. Consumption cuts made in 2022 are largely still in place, suggesting gas prices would need to climb much higher to knock remaining demand, Goldman Sachs analysts said in a note earlier this month."}],[{"start":177.18,"text":"Competition between Asia and Europe for LNG cargoes is therefore “inevitable”, said Anders Porsborg-Smith, a senior partner at Boston Consulting Group."}],[{"start":186.68,"text":"Asian LNG spot prices are currently not high enough to draw cargoes that would otherwise go to Europe. That could change if Asia’s biggest LNG importer, China, starts buying again after a summer hiatus or if freight rates drop, making it cheaper for US LNG to sail to Asia."}],[{"start":null,"text":""}],[{"start":203.76,"text":"Even so, there may be a limit to how much some of the more price-sensitive buyers in Asia are able to pay."}],[{"start":210,"text":"Indian buyers for industrial gas users told Goldman Sachs that $30 per MMBtu is a threshold they cannot breach, the bank’s analysts said in their recent note. If military attacks continue in the Gulf, preventing a resumption of regular LNG shipments through the Strait of Hormuz, prices are forecast to reach $35 per MMBtu this winter, the analysts said."}],[{"start":232.8,"text":"Some Asian countries have pivoted their attention to securing long-term LNG supplies to reduce the chances of having to compete for spot cargoes in the future."}],[{"start":241.6,"text":"While benchmark LNG prices have surged, prices for long-term deals have remained relatively steady owing to a looming wave of new capacity — mostly in the US — that will start operating within the next three or four years."}],[{"start":253.76,"text":"“We are seeing that they [Asian countries] are keen to sign off on long-term contracts again,” said Guido Brusco, chief operating officer global natural resources at Italian oil major Eni. “They want long-term because they don’t want to be exposed to the spot [prices] — they see it as very volatile and they’re even willing to pay a premium just so they know what they’re going to get.”"}],[{"start":274.48,"text":"“Asian customers all want 20-year deals because the prices are so low,” said one LNG producer. Wary of the looming capacity increase, many US producers are also racing to sign long-term supply deals."}],[{"start":287,"text":"At the Gastech conference in Bangkok this month, many US producers were trying to secure deals with buyers they would not previously have courted, said Iqbal Z Ahmed, chief executive of Pakistan GasPort, which owns importing infrastructure in Karachi."}],[{"start":300.48,"text":"“I have seen a sea change in the attitude of American companies. Previously, small companies like us were shooed away,” he said. “All of the American companies that I’ve met are very willing to discuss pricing and discuss delivery.”"}],[{"start":null,"text":""}],[{"start":314.76,"text":"Some European buyers said they were hesitant to sign up to long-term deals, fearing they could contravene strict new EU regulations that demand importers measure and report methane emissions. The bloc is under pressure to postpone the rules, including from French President Emmanuel Macron."}],[{"start":330.6,"text":"Alexandros Exarchou, chair of Greece’s Aktor Group, which recently signed a long-term deal with US supplier Venture Global, said he expects the EU to renege on the methane regulations after a frantic race for LNG supplies over the winter and inflationary pressures from surging energy prices."}],[{"start":347.36,"text":"“If they haven’t understood it already, they will,” he said."}],[{"start":351.52,"text":"In the meantime, policymakers in both Europe and Asia will be hoping for a mild winter."}],[{"start":358.012,"text":"“If it’s a warm season we’ll be OK, if it’s a normal season we’re going to be massively short [of gas] and if it’s cold we are going to see the same prices as we did in 2022,” said Boston Consulting Group’s Porsborg-Smith."}],[{"start":369.2,"text":"Data visualisation by Verity Ratcliffe and Steven Bernard"}],[{"start":379.16,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790501620_9065.mp3"}