The energy crisis in Europe has not only made the local people face a severe winter, but also hit the emerging economies of Asia.
Bloomberg published a few days ago that the financially stronger Europe not only took LNG spot from these countries, but also hit their energy transition efforts. “The battle for LNG is painful for emerging Asian economies,” the article said.
The European heating season is approaching, and some are optimistic that even in a worst-case scenario, complete without Russian gas, Europe can survive its coldest winter in 30 years.
First, how much higher energy prices can reduce demand for natural gas, assuming that the government only provides protection for the most vulnerable. For now, the fruits of weakening gas demand come mainly from industry, while European households still have a role to play.
Second, in the liquefied natural gas market, continental Europe is more competitive than some Asian countries. The article describes it as “a battle for competition”, and prices and cruise fees have been greatly raised.
The article believes that some countries in East Asia do not have cold winters, and their demand for natural gas is not as strong as that in Europe. For emerging Asian economies, the European market is more attractive to natural gas sellers at a time of high inflation and weak currencies, which is one of the reasons for the uncertainty of energy imports in emerging Asian economies. In the first eight months of 2022, spot LNG imports in Asia fell by more than a quarter from a year earlier.
The article also cites some examples from Asian countries.
On Monday, Pakistan closed a six-year tender for LNG purchases starting next year, but received no response. Pakistan had hoped for a long-term energy supply agreement to address woes in the spot energy market and ease domestic blackouts. However, at least so far, Pakistan has not achieved, which will lead to Pakistan’s energy shortage for several years. The situation in Bangladesh is similar.
Generally, buyers will seek to enter into long-term contracts to lower prices. But in fact, traders point out that there will be a lack of sufficient LNG supply on the market until 2026. Only when gas prices return to low prices will it be possible to see new export projects.
As for the Philippines, the country had pinned its hopes on importing LNG to reduce its overreliance on coal. However, in the face of current runaway natural gas prices, the Philippines has delayed construction of the receiving terminal and delayed first purchase contracts.
The article concludes that LNG demand in Europe is expected to peak in the late 2020s, and for many, that’s a long way off. “While emerging economies are using gas as a low-cost way to steer the energy transition, they will all feel the pain of the European energy crisis for years to come.”
