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Asia is winning the war of natural gas to Europe and keeps the cargoes that arrive from the U.S.

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    Asian buyers are winning a bidding and bidding war for U.S. natural gas (the spot market), which is Europe's great hope for a quick solution to the low levels of gas inventories the Old Continent is hoarding as the cold weather sets in.

    U.S. natural gas exports could help solve the continent's fuel supply crisis, but Asian importers are 'upping the ante' and increasing the price they pay for gas to take those American cargoes, leaving Europe in a critical situation.

    Natural gas is hitting decade-high prices in Europe, adding to fears that fuel price inflation could derail Europe's economic recovery.

    A bidding war

    Bids from European importers have not been high enough to attract spot supplies from the growing U.S. liquefied natural gas (LNG) export industry. The American industry condenses this fuel for easier shipment in tankers. Right now, these exports are going to buyers who are willing to pay more in Asia and sometimes also in South America, says the Financial Times.

    "They have more buying power now," says one LNG trader, referring to Asian buyers. "Europe, in principle, can count on supplies that go through pipelines, while China and Japan have no alternatives". So they are willing to pay a lot more. The problem is that in Europe it is not clear that all the gas they need will come through the pipelines.

    When British energy company Centrica signed a supply deal in 2013 with Cheniere Energy, a pioneer of liquefied gas exports from the US, then Prime Minister David Cameron claimed the deal would provide "British consumers with a new, long-term, secure and affordable source of fuel". Now, those statements are in doubt.

    Futures and spot market

    Most LNG is delivered through long-term contracts, but spot transactions in which shipments are bought and sold freely account for 10% to 20% of the 10 billion cubic feet per day of U.S. LNG shipments, according to Amber McCullagh, director of consultancy Enverus. It is in these shipments that help close gaps and balance markets where Europe is losing the game.

    Although European prices have more than tripled this year, they have not yet surpassed the prices of liquefied gas being delivered to Asia, the largest importing region. Countries such as Japan, India and China are buying as much as they can before winter, which increases competition for the small fraction of supply that is traded freely on the spot market and is not tied to long-term contracts, the Bloomberg agency added.

    Spot cargoes are critical to meet demand when local supplies run out, the FT explains. Asia and South America are overtaking Europe as the main destination for US LNG cargoes sold on the spot market, according to data from Kpler, a commodities data and analysis group.

    In addition, some long-term purchase contracts lack destination clauses, meaning gas can sometimes be sold to higher bidders.

    Importers are jumping in, taking advantage of the differences between U.S. gas that can be bought, liquefied and shipped to Tokyo Bay and then sold for values that are consistently outperforming European prices.

    "Every time the TTF (European gas price) goes up, the JKM (Asian gas price) goes up too," says the trader consulted by the FT, referring to natural gas price benchmarks in Europe and Asia. "It's a race to secure supplies."

    Commodity traders such as Trafigura, and other oil majors such as Shell, BP and TotalEnergies, are among the firms with purchase agreements and adjustable supply portfolios that could allow them to benefit from global price discrepancies, according to market sources.

    Gas markets in Europe, Asia and the U.S. are connected through liquefied natural gas, so movements in one region could redirect flows from one place to another. As the world's biggest importers and producers gather in Dubai for the Gastech conference, the first major physical event for the industry since the start of the coronavirus pandemic, LNG purchases will be a key topic of discussion as nations look to keep the lights on and homes warm this winter.


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