Tuesday, October 3, 2023
HomeGasAsia’s LNG importers risk supply disruptions if Ukraine conflict hits gas trade


To our FREE newsletter
Get all the latest maritime news delivered straight to your inbox.

Asia’s LNG importers risk supply disruptions if Ukraine conflict hits gas trade

Asia’s LNG importers risk supply disruptions if the Ukraine crisis were to escalate and impact Russian gas deliveries to Europe, but most countries are yet to prepare a response for such an eventuality or take measures to backstop gas supplies.

Economies like Japan, China and South Korea have some of the largest dependencies on LNG imports in the Asia-Pacific, but also have limited contingency options, given that gas markets do not have the same level of stockpiling requirements as crude and petroleum products.

Asian countries are also entering a period of geopolitical uncertainty after the price extremes of 2020 and 2021 that demonstrated how interconnected the Atlantic and Pacific basins have become, and how fluid trade flow changes can be.

S&P Global Platts Analytics believes that a complete curtailment of Russian gas to Europe is in neither side’s interest and remains a highly unlikely scenario, even in the event of a full Russian invasion of Ukraine.

Other market participants also expect Russia-Europe gas trade to be ringfenced.

“Even with Russian-Ukrainian tensions further escalated, gas exports might not be affected based on a near half-century history of Russian gas exports to Europe, even during the Cold War. Turkey’s downing of a Russian jet in 2015 did not affect Russian gas exports to Turkey,” Citigroup said in note to clients Jan. 25.

In addition, a significant disruption of pipeline gas from Russia to Europe is also unlikely to be completely solved by LNG due to capacity and logistical constraints in replacing all of the potential lost supply, said Jeff Moore, Manager, Asian LNG Analytics at S&P Global Platts.

However, the US said Jan. 25 that it was working to “identify additional volumes of non-Russian natural gas from various areas of the world — from North Africa and the Middle East to Asia and the United States” and it was “in discussions with major natural gas producers around the globe to understand their capacity and willingness to temporarily surge natural gas output and to allocate these volumes to European buyers.”

This has increased concerns of a scenario in which Russian deliveries are disrupted, and Europe turns to LNG an an emergency option.

“Nameplate European regasification capacity sits at 208 Bcm/year (excl. Turkey and Malta), well above 2021 imported volumes of 98 Bcm/year and forecast 2022 imports of 110 Bcm/year, raising the possibility that Europe could lean on global LNG markets to fill a significant proportion of Russian gas in any disruption scenario,” said Luke Cottell, Senior LNG Analyst, S&P Global Platts.

Pull on Asian LNG

Asian LNG importers currently face a twofold conundrum if Europe shifts a large portion of its gas procurement to LNG — a surge in spot LNG prices and a large-scale diversion of global LNG to Europe, potentially leaving those without the safety of contracts to scramble for supplies.

LNG trade flows in 2021 demonstrated how quickly arbitrage economics can change due to price volatility. Cottell said this newly-found Asian demand elasticity could be called on, especially if prices move above the $20/MMBtu mark.

He said fresh record-high prices could lead to further flexibility in LNG flows, with East of Suez supply moving to Europe due to Asian contractual buyers with destination flexibility re-selling term volume into the spot market.

Contractual commitments to Asian buyers, many of whom have adopted security of supply strategies due to last year’s price volatility, caps the volume of flexible supply in the market, while upside to global LNG production is limited, Cottell said.

However, market participants have voiced concerns about the sanctity of long-term contracts as contractual suppliers defaulted on cargoes even in 2020 and 2021. Traders also expect more legal battles over force majeure declarations as a war or conflict is an easy trigger for such incidents.

Few supply options

Cottell said a supply disruption scenario will just prolong and potentially exaggerate the current LNG market dynamic in Asia, as current prices already point most flexible supply to Europe and buy-side activity in Asia is very limited.

Platts Analytics estimates that high prices have already caused some demand destruction and fuel switching in Asia, and issues like gas shortages in South Asia and weak Chinese growth will only be exacerbated.

“From an Asia perspective, it’s important to note that we have seen significant economic turndowns in demand at the current price levels, which helps mitigate the need for spot procurement,” Moore said.

“We estimate there is more than 50 million cu m/d of demand lost across APAC when JKM is above $20/MMBtu for an extended period. This is one of the main ways we expect the market to balance this year, off demand losses in Asia which will allow for stronger deliveries into Europe,” he said.

Asian countries are generally emerging from a mild winter with healthy inventories, providing some comfort in LNG supply. But LNG prices are still above $20/MMBtu and all eyes are on Ukraine.

Source: Platts

Related Posts


Finance & Economy
Shipping News

Scorpio Tankers takes options to buy back over 20 ships

In a relevant SEC filing, Scorpio Tankers announced extensive vessel repurchases via sale and leaseback arrangements, including for the 2016-built LR2 product tanker STI...

TOP Ships Announces Reverse Stock Split

TOP Ships announced that it has determined to effect a 1-for-12 reverse stock split of the Company’s issued common shares. The Company’s shareholders approved the...

Carnival Earnings Outlook Misses While Fuel Costs Near 15-Year High

Carnival Corp. posted a profit for the first time since 2020 but issued a fourth quarter earnings outlook that missed Wall Streets’ expectations as...

Sphinx Investment Corp Increases Stake in OceanPal

On September 28, 2023, an OceanPal SEC filing revealed that Sphinx Investment Corp. had raised its ownership in OceanPal, now holding a substantial stake...

Star Bulk Announces the Repurchase of 10 Million of Its Common Shares

Star Bulk announced that it entered into a Repurchase Agreement (with OCM XL Holdings, LP, a limited partnership incorporated in the Cayman Islands, pursuant...

MSC to buy 50% stake in Italian passenger rail group Italo

Shipping group MSC has entered into a binding agreement to acquire a 50% stake...

Higher capesize rates drive Baltic index higher

The Baltic Exchange’s main sea freight index, tracking rates for ships carrying dry bulk...

Baltic index snaps 4-day winning streak as capesize rates slip

The Baltic Exchange’s main sea freight index, tracking rates for ships carrying dry bulk...

Baltic index scales 11-month peak on strong capesize rates

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry...

Baltic index scales over 9-month high on capesize surge

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry...

Ukraine: 5 More Cargo Ships Head For Black Sea Ports – report

Five more ships are on their way to Ukrainian sea ports using a new corridor opened to resume predominantly agricultural exports, an alternative arrangement...

Piraeus Port reports strong H1 2023 results

The Piraeus Port Authority SA, which operates Greece’s biggest and busiest port, reported a 48.8-percent increase in pre-tax earnings for H1 2023 – 49.4...

Greece names Thessaloniki port operator preferred bidder for Volos port

Greece’s privatisation agency has named the operator of Thessaloniki port as the preferred bidder for acquiring a 67% stake in the port of Volos,...

Drewry: Port Throughput Index Down 2.1% in July

The Global Container Port Throughput Index fell 2.1% MoM in July 2023, with the small rises recorded in Africa and Oceania having been insufficient...

Vopak: Agreement with Infracapital on sale of Rotterdam chemical terminals

Vopak announces that it has reached an agreement with Infracapital on the sale of its three chemical terminals in Rotterdam (Botlek, TTR and Chemiehaven)...