Europe's Gas Crisis to Ripple Across Asia, Fueling Global Price Spike

Europe's natural gas crisis is intensifying, with prices reaching two-year highs, and the impact is expected to soon ripple across the Asian market, according to a report by Nikkei Asia. The reversal of the usual price differential between the two regions is prompting buyers in Asia to divert liquefied natural gas (LNG) shipments to Europe, potentially pushing prices even higher globally.

The surge in European gas prices is driven by a confluence of factors, including a harsh winter that has boosted heating demand and reduced Russian gas flows. The amount of gas imported by pipeline to 27 European countries in January was at its lowest level in 16 months, down 18% year-on-year. This decrease is partly due to the cessation of Russian gas supplies through Ukraine.

Dutch TTF natural gas futures, a European benchmark, reached a two-year high on Monday, exceeding Asian LNG prices for the first time since 2023. This widening price gap is incentivizing traders to divert Asia-bound LNG to the more lucrative European market.

"In the past three years, the number [of LNG ships diverting from Asia to Europe] was only one to three during the same period, so this year is unusually high," says Go Katayama, principal analyst at Kpler, to Nikkei Asia. The recent imposition of a 15% tariff on US LNG by China is expected to further exacerbate the situation, as Chinese buyers seek to minimize their losses by reselling their LNG instead of importing it.

The problem could extend well into the spring and beyond. Yutaka Shirakawa, a gas analyst at the International Energy Agency, predicts that Europe's gas storage levels will be below 40% by the end of March. This will necessitate the region to source LNG from Asia at inflated prices to replenish reserves and meet the EU's storage target of 90% by November.

The potential for a prolonged period of high prices in Europe and Asia has led some EU countries to discuss potentially lowering their winter storage targets, according to Bloomberg News. However, Shirakawa warns that such a move "could increase the risk of tight supply and high prices in the winter when demand is high."