GAS PRICES26 Jun 2021 22:15
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There Isn’t Enough Natural Gas to Calm Down a Global Price Rally
(Bloomberg) -- Natural gas markets around the globe are rallying as the world’s importers have come to a stark realization: there isn’t enough supply to go around.
A long, frigid winter drained gas stockpiles from Louisiana to Germany, and utilities are struggling to build them back up. But unforeseen supply disruptions and a rebounding global economy are making it impossible to keep up. That’s setting up a desperate scenario as hot summer temperatures approach, and it’s bound to get even worse when demand peaks this winter.
Higher gas prices, which hit a 13-year high in Europe this week, will make it more costly to keep the lights on in Madrid or cool apartments in Tokyo, after scorching heat waves in some regions are already making it more expensive to run air conditioners. The cleaner-burning fuel is the latest commodity to add to the global inflation scare as the price of everything from crude oil to corn and copper surge.
If a gas deficit does develop during the winter months, it could spur European utilities to burn more coal, which has already started happening, and cause China’s power producers to curtail supplies to industries and cause blackouts like it did last winter. Households are set to pay sky-high utility bills and the worst-case scenario -- albeit unlikely -- is they won’t have heating or electricity when freezing temperatures hit.
“Supplies are already very tight, and that could get much worse if there is a cold winter,” said James Whistler, the global head of energy derivatives at Simpson Spence Young, an international commodity and ship broker. “We are seeing strong competition between Europe and Asia, and that is manifesting in the continuous rally.”
European gas prices have surged as inventories fell hit the lowest in more than a decade for this time of year, while rates in the U.S. and Asia have jumped to the highest seasonal level in years.
The gas sector had long been segmented between geographical regions, but the ramp-up in new supply of liquefied natural gas and growing liquidity in spot trading over the past several years has helped transform it into a genuinely global market. That evolution comes at a price, as Europe and North Asia now compete for a finite supply of LNG, which results in bidding wars that catapult spot rates.
At the center of the action is China, which in a surprise move is set to overtake Japan as the world’s top LNG importer for the first time this year. China is stockpiling supplies of the super-chilled fuel in order to power its booming economy and help it shift away from dirtier fossil fuels.
“China’s LNG demand in the past years keeps outperforming even the most bullish analysts,” said Henning Gloystein, global director of energy and natural resources at consultants Eurasia Group.
The mad dash is putting Europe at a major disadvantage, as Asian end-users increase prices to attract suppli
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