Global contest to secure LNG supplies intensifies on new Russian cut

Russia's latest move to cut natural gas supply to Europe is intensifying global competition for seaborne shipments of the fuel, threatening higher prices and shortages from Asia to South America with purchases becoming potentially unaffordable for countries like Bangladesh and Pakistan.

Utilities in South Korea and Japan are accelerating plans to purchase more liquefied natural gas cargoes for winter out of fear that Europe will also hoard supply, Bloomberg reported after talking to traders with knowledge of the matter. Even some price-sensitive buyers in countries such as India and Thailand are looking to procure cargoes and avoid a shortage.

Costlier-than-usual buying could yet leave palpable shortages in storages ahead of winter, when energy demand spikes, for countries with relatively stronger balance sheets like India, while poorer countries would struggle to purchase at all.

Russia's Gazprom PJSC said it will reduce flows through the Nord Stream pipeline to Europe again this week, forcing the region's buyers to find replacements like LNG. Spot prices of the super-chilled fuel, already trading at a seasonal high, are at risk of surging further as buyers in Europe and Asia move to outbid each other.

On Monday, Russian energy giant Gazprom, citing instructions from an "industry watchdog to fix an unexpected technical issue on gas pipeline", said gas flows to Germany through the Nord Stream 1 pipeline would fall to just 20% of capacity to 33 million cubic metres per day from today, Reuters reported.

The flows are already only 40% of normal capacity. Prior to the war, Europe imported about 40% of its gas and 30% of its oil from Russia. The Kremlin says the gas disruption is the result of maintenance issues and Western sanctions, but the European Union has accused Russia of using energy as a geopolitical weapon amid Western support for Ukraine against Russian invaders.

Politicians in Europe have repeatedly said Russia could cut off gas this winter, a step that would thrust Germany into recession and hurt consumers already hit by soaring inflation.

Global traders estimated that North Asia spot LNG prices were set to rally to the mid-$40s per million British thermal units level yesterday, the highest since early March shortly after Russia invaded Ukraine. There is a shrinking pool of available LNG through this winter amid supply disruptions from export facilities in Australia and the US.

Natural gas is a key fuel for power generation and heating, and the price rally threatens higher inflation around the world. At this price level, buyers in some emerging nations – such as Pakistan, Bangladesh and Argentina – cannot afford spot cargoes of the fuel and are struggling with power shortages.

South Korea is currently working on securing LNG cargoes from the spot market on wider supply concerns over geopolitical uncertainties, the energy ministry said. Any potential disruption to the country's power supply may require more spot purchases, according to Korea Gas Corp.

China – the world's top LNG importer last year – has remained on the sidelines of the spot market due to virus restrictions curbing demand for the fuel. If China's economic activity picks up, that could quickly change and result in fewer LNG cargoes for Europe, Samantha Dart, Goldman Sachs Group Inc.'s head of natural gas research, told Bloomberg Television last week.