Page 4 - GLNG Week 36 2022

GLNG COMMENTARY GLNG

Europe pays what it takes to bring

in LNG but still cannot get enough

COMMENTARY The staggering cost of Europe’s current gas This means that Russia has been able to reori-
imports is threatening to destroy any lingering entate its LNG exports and still send them into
hopes of a post-COVID economic recovery and world markets.
will saddle governments with higher debts and This has created the situation where Europe
businesses and consumers with higher taxes and is still buying gas whose availability is facilitated
crippling energy costs. by Russian exports to China. The gas does not
Europe’s immediate response to Russia’s inva- need to physically move from Russia to China to
sion of Ukraine and the Kremlin’s cut in pipeline Europe, although this could happen, but a series
gas exports has been to pay whatever it takes to of swap deals means that gas from Russia is effec-
bring in LNG as an alternative. tively reflagged as Chinese.
On global gas markets, Platts LNG Japan/ This practice, dubbed gas leakage, means that
Korea Marker (JKM) Futures reached $55 on the Kremlin can get round Europe’s gas sanc-
September 8, compared with $8 a year ago, tions, while European buyers can access the gas
meaning that futures for LNG are now seven they want, although at a far higher price than for
times what they were in September 2021. pipeline gas from Russia.
This price is only set to rise more because of a For example, Sakhalin-2 LNG plant on Rus-
shortage of tankers, higher chartering rates and sia’s Pacific Coast has sold at tender several car-
limited gas supplies, S&PGlobal said, goes of LNG to China at half the current spot
Meanwhile, JKM’s daily physical assessment price, Bloomberg reported.
reached $71.01 on August 25, the highest since In turn, China can then resell gas to gas-hun-
March 7 when the benchmark hit a record gry buyers in Europe, Japan and South Korea,
$84.76. Furthermore, this is still a $20 discount which have all stopped buying spot LNG since
to Europe’s TTF benchmark. Russia’s invasion of Ukraine.
These spot and future prices contrast with esti- China has seen its LNG imports rise by 60%
mates for current long-term contract price put at in 2022, according to research firm Kpler, while
$16, according to Reuters. gas consumption has fallen because of slower
However, Reuters warned that given the pre- economic growth.
ponderance of long-term, oil-linked contracts Beijing is now selling this gas surplus – bought
in Asia, Europe will probably not be able to buy from US, Australian or Asian producers – in the
draw as much LNG from Asian markets as it form of LNG cargoes to Europe. The Nikkei
wants, no matter what price it can pay. reported that more than 4mn tonnes of Chinese
LNG has probably been resold to Europe, mak-
Where does the gas come from? ing up 7% of Europe’s imports in the first half of
If Russia’s piped gas has fallen from 40% to 9% the year.
of supplies in nearly six months, where is the This means that European and Asian buyers
replacement gas coming from? So far, Europe have been unable to shut out Russia from the
has bought up gas quickly and aggressively, man- global market, and can only buy up LNG car-
aging to fill its storages to 82% of capacity ahead goes from Asia or the US because Russian LNG
of the coming winter. is freeing up new cargoes for sale.
Europe has increased imports from the US So, Europe has been purchasing Russian LNG
and Qatar, with LNG rising by 63% in the first via China – while pretending like it is highly
eight months of 2022 to 85.3mn tonnes, equiv- successful in its campaign to decouple from
alent to 400 mcm per day, as the continent uses Moscow.
up all regasification and cross-border pipeline The frantic purchasing has creating a tight
capacity. global market, which pushes up prices. LNG
However, the nature of the global market tankers are now waiting laden at anchor,
means that Europe is not as able to block Russian Bloomberg reported, as Europe’s utilities are now
gas imports as it wants. paying to store LNG in tankers offshore as extra
Gas is a fungible commodity, meaning that gas storage for winter, as the continent’s gas storage
from one production plant or tanker is exactly tanks are now full. Kpler said 1.4mn tonnes of
the same as any other gas, unlike oil, which has LNG was floating offshore on September 2, the
several different grades. most in two years.

P4 www. NEWSBASE .com Week 36 09•September•2022