LNG ‘inequality’ bites as Europe takes supply from Asia

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Industry executives have stated that the rising demand for liquefied natural gas (LNG) in Europe, in order to compensate for the reduced supply of Russian gas through pipelines, has resulted in skyrocketing prices of the commodity. Consequently, this surge in prices has rendered LNG unaffordable for many purchasers in regions with lower income levels, like south and southeast Asia. As a consequence, some of these regions are now resorting to increased reliance on coal as an alternative energy source.

"Clearly, Europe must seize every opportunity to acquire as much gas as possible due to the absence of pipeline gas from Russia," shared Russell Hardy, the CEO of Vitol – the globe's leading autonomous energy trader. Hardy made this statement during the Energy Asia conference held in Kuala Lumpur, Malaysia.

Hardy stated during the commencement of the event last month that Europe's strong demand for LNG has permanently taken away a considerable supply from Asia. Additionally, Europe has also absorbed all the fresh supply from the US. As a result, by 2023, Asia would still have access to LNG, but it would come at a significantly higher price.

The cost of liquefied natural gas (LNG) in Asia has decreased after reaching an all-time peak of $70 per million British thermal units in August last year. The International Energy Agency reports that during the months of January to March, the Japan/Korea Marker prices, which serve as a reference for the market, averaged $18 per million Btu. These prices have continued to decline in recent weeks. However, it's important to note that despite the decrease, the prices are still relatively high when compared to historical data. Furthermore, there is a possibility of prices rising again if Europe experiences a harsh winter, in contrast to the mild one encountered previously.

Hardy stated that the exorbitant prices were hampering Asia's LNG usage, which is expected to rise from 252 million tonnes in 2022 to 260 million tonnes in the current year, however, it remains less than the 272 million tonnes recorded in 2021.

"Currently, Asia is obtaining a smaller amount of gas compared to the potential amount it could acquire by the year 2021," he remarked. "This situation serves as one example showcasing the presence of disparity."

Europe managed to avoid an energy crisis in the previous winter by sourcing new shipments of liquefied natural gas (LNG) from the United States and Qatar. These two nations have now emerged as the leading suppliers of gas globally, as Russia has significantly downsized its gas supply to Europe following its aggression in Ukraine.

However, the presenters at the conference emphasized that lower-income markets had been adversely affected by a crisis in the liquefied natural gas industry.

According to Michael Stoppard, who leads the global gas strategy at S&P Global, the European policymakers are claiming that they successfully managed the situation and prevented power outages. However, in reality, power outages did occur, specifically in Asian markets, particularly in south Asia, because the liquefied natural gas (LNG) supply was redirected to European markets that were willing to pay more.

According to Patrick Pouyanné, who is the chair and CEO of TotalEnergies, a French oil company, Asia has played a crucial role in the expansion of the global LNG market. Before the recent market disturbances, LNG was viewed as a significant energy source for transitioning to cleaner fuels. As a result, its consumption has been increasing in the Asian region as they strive to decrease their heavy dependence on coal.

“And subsequently, Europe acquired some liquefied natural gas (LNG) from Bangladesh, Vietnam, and Thailand, resulting in an increase in prices,” Pouyanné expressed. "Consequently, we encouraged these nations to depend more on coal."

"I am hopeful that Europe will experience better conditions, with higher temperatures, during the upcoming winter," he remarked. "Otherwise, the only alternative would be to acquire an increased amount of energy from Asia."

This blog post is sourced from Nikkei Asia, a global magazine renowned for its distinctive viewpoint on politics, the economy, business, and international matters, with a specific focus on Asia. Our team of journalists and guest contributors from various parts of the globe express their perspectives on Asian affairs. Moreover, our Asia300 division delves deep into the extensive coverage of 300 prominent and rapidly expanding publicly traded companies hailing from 11 economies excluding Japan.

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Octávio Simões, the head honcho at Tellurian, a US-based natural gas manufacturer, claimed that countries like Pakistan, Sri Lanka, Indonesia, Japan, and South Korea have significantly increased their coal consumption due to the unavailability of reasonably priced liquefied natural gas (LNG).

"And certain nations such as Pakistan have made the decision to completely abandon their previously implemented approach of relying on natural gas and instead prioritize the cultivation of their coal reserves," stated Simões.

Tengku Muhammad Taufik, the head honcho and top executive officer of Petronas, a state-owned oil corporation in Malaysia, expressed worries about the future viability of natural gas production in the area due to the inadequate investment in the oil and gas industry.

He mentioned that certain banks and financial organizations expressed concerns about their investments in oil and gas ventures becoming trapped assets. Meanwhile, according to other prominent figures in the industry, the growth of renewable energy initiatives and the decarbonization endeavors of energy companies in Asia haven't advanced as rapidly as anticipated.

This blog post initially appeared on Nikkei Asia's website on June 27. ©2023 Nikkei Inc. All rights reserved.

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