Global energy crisis: in the midst of war, Europe and Asia compete for the market and put pressure on prices



A ship loaded with LNG near the Sakhalin regasification plant in Japan, the world's second largest importer of LNG REUTERS/Sergei Karpukhin (RUSSIA)/File Photo
A ship loaded with LNG near the Sakhalin regasification plant in Japan, the world’s second largest importer of LNG REUTERS/Sergei Karpukhin (RUSSIA)/File Photo

The competition between the European Union and the largest countries in Asia is putting pressure on the gas market again, particularly that of Liquefied Natural Gas (LNG), which is transported in large “methane tankers” and whose prices are predicted to be firm and sustained. until well into next year.

China, Japan and South Korea are, in that order, the world’s main importers of LNG, but as a result of the Russian invasion and the war in Ukraine and the cut in the supply of Russian gas through the gas pipeline to the countries of Western Europe, the EU approved a demand reduction plan for the coming boreal winter.

Europe is betting on completing 80% of its gas storage capacity before the beginning of November, but Europeans will find it much more expensive to complete their reserves: some 50,000 million euros (about USD 51,000 million), 10 times more than the historical average. Keeping the large storage centers full would be a way to cushion the shortage of Russian gas and be better prepared for the peak winter months.

The saving implies rationing measures, measures that have already been announced in Germany and France, and in the immediate future much higher prices. For example, in the Netherlands the price of energy for an average family is already 5,000 euros a year, 150% more than the 2,000 euros it cost twelve months ago, reported the Dutch media outlet Telegraaf.

Not everyone can afford the bill. Vattenfall, the leading company in the Dutch gas market, reported that one in ten of its customers are not paying their bills on time and will face additional charges at the end of the year. “Around 40% of our clients pay very little, and with 10% we are talking about 200 euros a month,” he said. Martin Neef, company spokesperson. “Energy prices will remain high, so there is little we can do but pass the cost on to consumers,” he noted.

The European Parliament, in the session in which the gas saving plan was agreed
The European Parliament, in the session in which the gas saving plan was agreed

In France, meanwhile, Congress approved a 20 billion euro package of measures to help struggling households cope with rising energy and food prices. The package includes setting a maximum price for gas and electricity and increasing the fuel subsidy from 18 euro cents per liter to 30 cents in September and October.

Such measures, the IMF warned, could worsen Europe’s energy crisis. The organism supported the aid to the poorest sectors, but said that the rest of the consumers would have to support the higher prices, so that the energy saving is promoted. Until now, however, European politicians have introduced sweeping price controls, subsidies and tax cuts to soften the blow of soaring energy prices across the continent.

The next few months

Tensions are likely to rise in the coming months as competition between the EU and Asian countries for LNG supplies intensifies. It happens that in recent months China, the world’s main importer, imported relatively little, due to the lower demand for gas due to confinements in cities such as Shanghai (25 million inhabitants) and other large urban centers, due to its “Covid-19″ policy. zero”.

But as China, Japan and South Korea step up their buying ahead of the winter, pressure on gas prices and energy in general will intensify.

“If there were less LNG available, Europe will need to destroy demand” (Samantha Dart, head of gas sector research at Goldman Sachs)

“If on top of that economic activity in China starts to rebound more visibly, there will be a significant shift in the balance of the LNG market. If there were less LNG available, Europe will need to destroy demand” (that is, consume less) he said. samantha dart, head of gas sector research at Goldman Sachs, to the Financial Times.

global appeal

In this scenario in which the natural gas reserves of Argentina, particularly those of “unconventional” resources in the Vaca Muerta geological formation, are attractive as an alternative source of supply for European countries.

So far, however, there has been more potential than reality. Although Vaca Muerta is considered the world’s second largest “unconventional” gas reserve, its development and production is limited by the lack of transportation capacity for internal supply and the lack of liquefaction plants and outlet ports for foreign markets, such as Europe.

Oil and gas drilling platform in Vaca Muerta in Neuquén REUTERS/Agustin Marcarian/File Photo
Oil and gas drilling platform in Vaca Muerta in Neuquén REUTERS/Agustin Marcarian/File Photo

In fact, despite its potential, Argentina has almost no weight in the world natural gas market. According to him Statistical Review of World Energy 2022 British Petroleum, perhaps the most reputable international publication of comparable data in the energy sector, in 2021 the country produced 38.6 billion cubic meters, equivalent to only 1% of world production, against 934 in the US , 702 from Russia, 257 from Iran, 209 from China and 177 from Qatar. Those 5 countries hold two thirds of world production. But China also imports and Australia, outside the Top 5, is one of the main exporters, along with the US (which consumes 88% of the gas it produces) and Qatar, of LNG, and Russia is of total gas.

The main gas exporters, according to a report by Roberto Carnicer, director of the Energy Institute of the Universidad Austral
The main gas exporters, according to a report by Roberto Carnicer, director of the Energy Institute of the Universidad Austral

in the underground

In the country, the global context opens important opportunities in a very challenging internal context.

Although Argentina has enormous reserves in the subsoil, it is not yet self-sufficient. In 2021, it produced 38.6 billion cubic meters of gas, but consumed 45.9 billion cubic meters, 1.1% of the world total, covering the difference with net imports. The promise is long overdue, in 2011, when the potential of Vaca Muerta was already known, the country produced 37.7 billion cubic meters of natural gas (1.1% of the world total) and consumed 43.8 billion cubic meters of million (1.4% of the world total). In other words, in 10 years, despite the immense potential of Vaca Muerta, production increased by a meager 2.4 percent.

According to a recent report by the “Economy and Energy” consulting firm, Nicholas Arceo, the policy of recent years of cheap energy, led to an excessive increase in domestic demand, to the point between the first half of 2022 and the same period of 2019 the demand for natural gas in the residential segment increased by 17% and that of electricity 18%, causing a trade deficit of USD 2,648 million in the first half of this year, the highest since 2014. In turn, the tariff policy led to a very strong increase in energy subsidies, which Arceo projected at USD 15.5 billion for this year, the highest in a decade, only surpassed by the records of 2015.

According to Arceo’s calculations, 68% of the increase in energy imports is explained by the increase in imports of diesel and natural gas, in both cases the responsibility of state-owned or state-majority companies such as YPF, Cammesa and Enarsa.

Argentine energy imports in the first half of the year
Argentine energy imports in the first half of the year

Hence the need not only to increase production, but also to make more rational use of resources and prevent waste.

Meanwhile, the Government hopes that the first section of the “President Néstor Kirchner Gas Pipeline”, between Treatyén (Neuquén) and Salliqueló (Buenos Aires), will be ready by the winter of 2023. It will allow, eventually, to dispense with gas imports, which this year they were one of the main holes through which the Central Bank’s reserves drained. Exporting would also require building at least one liquefaction plant, an investment estimated at no less than USD 5,000 million, and adapting a port of departure (everyone points to Bahía Blanca).

As long as the conflict between the Western bloc and Russia continues, as international political analysts seem to agree, Argentina’s gas potential could be a great attraction for European investments, provided it offers macroeconomic stability and predictable rules of the game.

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