How does Russia’s gas cut to Europe affect Asia?

, How does Russia’s gas cut to Europe affect Asia?

Severe shortages are causing many buyers in Europe to hoard, buy more and more gas orders, compete directly with buyers in Asia – most of which are countries experiencing difficulties.

The recent cuts in the flow of natural gas to Europe through the Nord Stream 1 pipeline, experts say, threaten to further destabilize Asia’s energy security and could accelerate the transition to Europe. liquefied natural gas (LNG) shipments out of this area.

On July 27, Russian energy giant Gazprom cut natural gas supplies to Europe through the Nord Stream 1 pipeline to only 20% of the pipeline’s capacity.

Gazprom cited the interruption as for turbine maintenance. But European officials say the latest in a series of supply disruptions is “motivated” related to tensions between Brussels and the Kremlin over the conflict in Ukraine.

Why does Russia cut gas to Europe, causing Asia to panic? - Photo 1.Why does Russia cut gas to Europe, causing Asia to panic? - Photo 1.

Russian state energy giant Gazprom has cut gas supplies to Europe through Nord Stream 1 to just 20% of the pipeline’s capacity.

LNG futures contracts in Europe jumped 10% after the news broke. Meanwhile, spot LNG prices in North Asia also rose to their highest levels since March.

Utilities in South Korea and Japan are concerned that Europe will store more gas as winter in the Northern Hemisphere approaches and are rapidly picking up LNG orders as much as possible.

Kaushal Ramesh, gas analyst at Singapore-based Rystad Energy, told Al Jazeera: “The direct impact of the Nord Stream pipeline cuts will increase competition for already existing LNG shipments extremely limited.”

“We expect affordability Asian buyers, mainly Japan and Taiwan, to be able to compete with buyers in Europe. Physical transactions in Asia have now been pushed forward. to the highest level, at 47 USD / MMBTU and winter is very close,” Mr. Ramesh said.

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Although there is a significant difference in LNG prices between regions, in recent years the market has become increasingly globalized. Currently, LNG prices in Asia have closely followed prices in Europe, while the US has significantly reduced prices due to being the world’s largest gas producer.

According to Mr. Ramesh, currently, Europe is seriously lacking in gradually shifting demand to using LNG, so they are competing with Asia. He said that as long as Europe remains short, LNG prices in Asia will continue to be dominated.

The effects of rising prices are not uniform across the region

While countries with great financial potential such as Japan and South Korea have reserves to cope with rising prices. Developing countries, especially in South Asia, are struggling to maintain electricity.

Pakistan has experienced power outages lasting more than 12 hours in recent weeks as the new government struggles to get more gas. Prolonged power outages amid extreme heat caused angry Karachi residents to take to the streets to protest in June.

In early July, Pakistan’s state-owned gas company failed to participate in a bid to buy $1 billion in LNG. The energy crisis has made it more difficult for the government of new Prime Minister Shehbaz Sharif to find a way to avert an economic crisis and negotiate bailouts with the International Monetary Fund.

In Sri Lanka, where energy shortages led to the complete collapse of the national economy and government in May, the country’s petroleum reserves are running low and there is still no solution.

Economists say that the resilience of these countries will depend on the duration of fluctuations in gas prices. “If this is a short-term crisis and will subside over the next six months, I don’t expect any more major victims,” ​​said Badri Narayanan Gopalakrishnan, a Delhi-based economist who served as an adviser to the Bank Asian Development.

“I don’t think Pakistan will follow in the footsteps of Sri Lanka because it has more supply diversity and greater domestic production capacity and is relatively less dependent on expensive imports,” he said.

Recent rates of growth and development have certainly made many developing countries more energy dependent, but this can still be controlled somewhat if they diversify their energy sources, as India is doing. do. However, all countries are vulnerable if the situation persists for too long.

A rapidly tightening supply can also hurt demand as prices become unsustainable, which, combined with other destabilizing macroeconomic factors, will cloud the already-existing economic outlook totter.

“The biggest macro trend affecting demand right now is prices,” Ramesh said. “We’re exceeding the affordability of most industrial sectors even in Europe.”

“That means, combined with general food and energy price inflation, as well as the rate hikes needed to break out of an inflationary trend – we shouldn’t reduce the demand-destroying impact of an impending recession.”

Why does Russia cut gas to Europe, causing Asia to panic? - Photo 3.Why does Russia cut gas to Europe, causing Asia to panic? - Photo 3.

Gas prices spiked as the region looked for more supplies.

Data from the International Energy Agency (IEA) showed a decline of more than 3% in the first quarter of 2020, while the recovery ignited a resurgence with demand rising to 6% in 2021. predicts demand will grow 2.4% this year, roughly the same rate as pre-pandemic growth.

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However, rising prices could threaten gas’s place in the future energy mix. The IEA predicts gas consumption will decline slightly in 2022, while there has been a significant downward revision to its growth outlook in the coming years.

Reference: Al Jazeera

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