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EU price premium to tighten competition for spot LNG cargoes in Asia

Oil&Gas Materials 30 March 2022 13:29 (UTC +04:00)
EU price premium to tighten competition for spot LNG cargoes in Asia
Laman Zeynalova
Laman Zeynalova
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BAKU, Azerbaijan, March 30. The threat to Russia’s pipeline gas exports to Europe, next to accelerating efforts to reduce exposure to Russian supplies, are expected to drive up demand for alternative gas sources, among which will be seaborne LNG that would otherwise primarily be consumed by buyers in Asia seeking spot cargoes, Trend reports with reference to Fitch Solutions.

“The significant price premium in the European market is expected to tighten competition for spot LNG cargoes in Asia, inducing substantial added import bill burden at a time when many are starting to remove strict anti-pandemic regulations as part of broader reopening measures.This looks set to soften the demand for spot LNG in Asia during the earlier months of 2022, as markets seek to manage ballooning import bills. The outlook for contracted LNG, mostly oil-indexed, is more secure albeit sharp price rises look difficult to avoid next to a concurrent sharp rise in crude oil benchmarks,” said the company.

Fitch Solutions says in its latest outlook that exposure to international price swings will require Asia’s governments to enact measures to relieve the cost burden on consumers and businesses, otherwise incur significant setbacks to their projected demand recoveries in 2022.

“As may be the case in Europe, a temporary switch to lower-cost alternative fuels such as coal and nuclear, particularly in power generation, is possible albeit the former risks stalling the region’s progress towards decarbonisation. Fuel demand is expected to register a strong growth of 5.4 percent in 2022, up from 1.8 percent in 2021, as more anti-pandemic rules are eased across regional markets allowing normal activities to resume, albeit the risks are to the downside due to the aforementioned price, inflation risks,” the report reads.

Threats from new more transmissible Covid-19 variants cannot be ruled out, with some markets notably China still remaining cautious in their domestic Covid-19 management strategies, accoding to Fitch Solutions.

“The upstream narrative across Asia will continue to be divergent with natural gas trumping that for crude oil. The trend is becoming more prominent, not least due to gas’ preferred quality as a cleaner-burning fossil fuel compared to coal and oil, and also based on the gas-dominant project pipelines across the region’s largest gas producers. In spite of a stronger oil price environment, a general pullback in IOC investments from traditional fossil fuel plays will compound the spending burden of Asia’s national oil companies, whose own finances continue to be stretched to sustain domestic oil and gas activities and meet growing investment obligations across the value chain. This will further incentivise them to be selective in their project choices,” the company says.

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