How to capitalize on the Europe's gas crisis

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to the Oil and Capital Internet portal on the current situation at the global LNG market.

“Based on the market rules at the global LNG market, tankers off the coast of Europe, of course, will only stand up to a certain point. For LNG ships to reach Asia, traders need to incur quite a tangible cost, especially given the high freight prices. LNG suppliers are simply waiting for the cost of spot gas at JKM to rise above the figure, which includes the price of European TTF + shipping costs to Asian countries.

This situation is not far off. The flywheels of the heating season are just beginning to unwind, which means that in China, South Korea, Japan and other southeastern countries, demand will only grow. Of course, the increase in gas consumption in China this year is extremely weak due to the pandemic, so the potential outflow of LNG tankers from the Old World may be affected by the weather. If the air temperature in Europe is much lower than usual, then there is a chance to keep ships with liquefied gas for some time. However, this will not fundamentally change the situation, since certain volumes of Asia will be needed in any case,” Alexey Gromov said.

The mass conclusion of long-term contracts between European buyers and suppliers of LNG, including those that carry cargo from the United States, is not a panacea. First, there are practically no free volumes on the gas market. It is either already contracted, or traders specifically want to leave a reserve for operations on the spot. Secondly, as Alexey Gromov rightly pointed out, this year there have already been several precedents when even a contract was not a guarantee of supplies.

“Moreover, LNG suppliers will increasingly be repelled by various EU initiatives to limit gas prices. The mechanism has not yet been adopted, it has not been fully formed (either a dynamic ceiling, or a corridor), but it has not been 100% rejected in the European Union,” the expert shared his opinion.

All this suggests that ideal conditions have been created for LNG supplies from the United States today - sales markets are always ready. If there is an Asian premium, LNG from America goes to Asia. If it is not there, then you can sell gas to the EU, where, due to problems with pipelines, liquefied gas is now always ready to be bought.

According to Alexey Gromov, the situation may change somewhat after 2026, when Qatar will significantly increase its LNG export capacity and take a dominant role in the market. However, in any case, gas from the United States is clearly more comfortable on the European market today than a few years ago, since the Russian Federation is squeezed out from there, and other pipeline gas suppliers, due to weak investment and a number of other factors, are also unable to seriously increase exports.