GS Paper - 3 Energy

Asia’s emergence as global natural gas trading superpower will increasingly dictate market rates in Europe for a once-localised commodity that was simply linked to the price of oil. The change was highlight­ed this winter, when freezing temperatures in the northern hemisphere meant liquefied natural gas (LNG) tankers went to Asia, the biggest consumer of the fuel and where sellers could get record-high rates. That pushed up market levels in Europe and conversely, is now acting as a price brake as winter ends and LNG supplies return to the region.

What

  1. Over the next couple of years, European gas prices will become less and less Europe-centric, and more and more globally influenced.
  2. Even with its numerous pipeline-supply options, Europe’s import dependency is rising amid falling domestic production due to aging fields in the North Sea.
  3. At the same time, trade in LNG transportable across oceans is expanding faster, driven mainly by demand in Asia.
  4. In coming years, Europe will have to compete for LNG with consumers in China, India, Pakistan and Bangladesh.
  5. In addition, new markets are yet to open as some Asian nations are just starting to use gas in power generation instead of more polluting coal and fuel oil.
  6. By contrast, Europe’s tightening climate targets will lead to more renewables squeezing out gas.