Europe has started a race against the clock. And China has entered to make prices more expensive

Winter has left Europe with reservations practically empty and needs to reach a level of 90% before November. Meanwhile, China has emerged as a direct competitor in the global gas market, putting Europe in a counterreloj race to guarantee its supply before prices shoot.

Short. The European Union will have to spend 10,000 million euros more than last year to fill its gas reserves, According to the Financial Times medium. The reason behind this increase is due to a colder winter, an increase in demand for less renewable generation and greater dependence on liquefied natural gas.

The background. It all started with the war in Ukraine, since until that moment Russia supplied about 40% of the gas To the EU. However, commercial reprisals and sanctions drastically reduced that supply, to the point that an agreement has been signed to fully close exports in 2027, According to Euronews.

A vicious circle. The European bloc had to look for other alternatives, such as the GNL imported from the United States and Qatar. However, it continued to supply Russian gas Through third countries or by calls “Ghost ships”. At the same time, the European Union was trapped in a price instability cycle, caused in part by the spot market dependence for LNG purchases. As He explained The London medium, this situation caused governments to compete with each other to ensure cargoes, inflating prices and generating distortions in the market.

Flexibility in storage. Given the difficulties in maintaining 90 %reserves, the European Commission is considering granting greater flexibility in the storage objective, especially after Germany – the country more dependent on gas – requested adjustments to avoid price peaks in summer. However, in parallel, Germany has reached an agreement with France to receive energy support through the nuclear energy supply. A strategic movement that seeks to ensure its energy stability while storing objectives are readjusted. This measure aims to relieve pressure on markets, although it generates uncertainty due to the possibility that changes are not promulgated in time.

The recharge dilemma. According to Kuhanathan, an analyst from Allianz Trade, has declared Financial Times That many gas merchants are delaying reservation recharge, waiting for prices to fall further. However, this attitude could generate a sharp increase in demand at the end of summer, shooting prices just before winter. In addition, Peder Bjorland, Vice President of Equinor Gas Commerce, has warned in the same medium that Europe will have to pay higher prices to overcome Asian competition if China’s demand is replenished.

China, a determining factor. The largest world buyer of liquefied natural gas is China. Last year, LNG’s Chinese demand was reduced due to an unusually favorable climate and economic slowdown. This drop in consumption allowed Europe to access cargoes that, otherwise, would have gone to Asia, contributing to stabilize prices in the short term.

However, projections for the coming months indicate a possible rebound in Asian demand. The commercial truce between Beijing and Washington, Recently announcedcould activate an increase in Chinese industrial activity, which would raise the demand for LNG, According to estimates of the Financial Times. In addition, a hot summer in Asia can further increase gas consumption, putting Europe in a direct competition situation with Asian buyers. According to Morgan Stanley analysts for the same medium, this additional pressure would boost gas prices up to 10%.

A decisive actor. During the commercial war with the United States, Beijing He hinted that he could sell American liquefied natural gas to Europe, but the situation has taken a totally different nuance. Now it is key to observe The development of the Power of Siberia 2 gas pipeline With Russia, as well as China’s ability to DNA. Leaving the framework of the global energy future open.

Image | Pixabay

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