Prof. ST Hsieh
Director, US-China Energy Industry Forum
March 4, 2022
Ukraine war is still raging as more territory is falling to Russian forces day by day. The news that Russia has taken control of Europe’s largest nuclear power plant created some panic. Some people were worried about a nuclear radiation leak amounted to a deliberate nuclear disaster in Europe. But it was not reasonable, because Russia is next neighbor to Ukraine. Any nuclear disaster will impact Russia as bad, or even worse, as Ukraine. It is not rationale to worry that Russia or Putin will commit a nuclear suicide.
It is also notable that the US and Russia have already secured a nuclear hot line between the two militaries for eliminating any potential misunderstanding that may cause a global nuclear war. However, it is obvious that only the US and Russia can manage a cease fire in Ukraine.
Further, Ukraine war has already created rising price for global commodities and inflations. Specifically, global energy prices are skyrocketing. One factor, of course, is public panic. Secondly, are speculators taking advantage/profit of the war.
The following news report covers the “Record High LNG Spot Prices in Asia.” It is clear that Ukraine war is bad news, but it is not clear why LNG prices in Asia shots up to a record high. Surely, war can cause unforeseen interruptions of supply. But Ukraine, the battle ground, is not an energy producer nation. It has no impact on LNG source or destination. One factor is “traders are avoiding Russian LNG, just like they are steering clear of Russian crude.” However, it is choice made some traders and it can be reversed anytime.
The comparison that current European bench market LNG price is comparable to “equivalent of $360 per barrel of oil” may not be rationale. First of all, in terms of processing, distribution, and marketing, LNG and crude oil are different. LNG, after re-gasification, can be directly used for power generation and home heating. But most crude oil has to be refined/marketed as gasoline, it takes additional cost and time.
Finally, “the EU is drafting plans to reduce its dependence on Russian gas” has no impact to the current energy price. Even if a plan is finalized, it will take major investment and time to complete the infrastructure. It should have been done years ahead of this war!
Supply Concerns Lead To Record High LNG Spot Prices In Asia
Fri, March 4, 2022, 9:00 AM
The spot prices of liquefied natural gas (LNG) in Asia jumped to a record-high of $59.672 per million British thermal units (MMBtu) on Thursday, as the market panics over natural gas supplies following Russia’s invasion of Ukraine.
The price of spot LNG, the Japan-Korea-Marker (JKM) benchmark for the region, as assessed by S&P Global Platts, soared this week to beat the previous record of $56.326/MMBtu set in October 2021. Back then, the market was tight ahead of the winter in the northern hemisphere, with Europe and Asia experiencing energy crises.
Now the winter is nearly over, but the Russian war in Ukraine has begun, spreading panic on all commodity markets that there would be disruption of energy supplies.
According to vessel-tracking data from Refinitiv Eikon cited by Reuters earlier this week, several LNG tankers from Yamal LNG in Russia have switched status to “For Orders” in the past days, from previously signaling France and the UK as destinations.
Currently, Europe is a strong pull for LNG cargoes, with prices there also rallying amid concerns that Russian pipeline gas supply could be disrupted or cut off any day now.
The European benchmark natural gas price surged on Thursday morning to hit a new record-high for a second consecutive day, trading at the equivalent of $360 per barrel oil, as concerns over the disruption of Russian gas supply mount.
The market is increasingly apprehensive about a potential disruption to natural gas supply—be it additional sanctions targeting Russia’s energy, a possible Russian retaliation to sanctions by halting pipeline supply, or a direct hit on a pipeline carrying gas from Russia via Ukraine.
Meanwhile, the EU is drafting plans to reduce its dependence on Russian gas, while the International Energy Agency (IEA) said on Thursday that the European Union could reduce its reliance on Russian natural gas by more than one-third within a year by turning to other suppliers and using other energy sources.
By Tsvetana Paraskova for Oilprice.com