Asian LNG importers are rejoicing on the EU choice to cap pure fuel costs. The worth cap might restrict volatility and extreme value spikes on the Asian spot LNG market, merchants advised Bloomberg after the EU vitality ministers agreed on a “market correction mechanism”, which might come into drive on February 15, 2023.
Because the Russian invasion of Ukraine and the slashed pipeline fuel provide from Russia to Europe, the EU and Asia have competed for LNG cargoes with costs setting document highs on each markets earlier this yr amid intense competitors and supply-side points. The EU has managed to outbid Asia this yr due to the upper costs in Europe and low demand in Asia, together with in China.
The cap on the European benchmark – which will probably be triggered if the month-ahead value on the TTF hub exceeds $191 (180 euros) per MWh for 3 consecutive days – might restrict runaway value spikes on the Asian market, too, in keeping with Bloomberg.
Asian LNG importers might be happier with a value cap in Europe as a result of they may thus outbid the EU for spot provide.
For Europe, nevertheless, considerations stay {that a} value cap and market interventions might stifle its skill to pay up for LNG provide, which, analysts and merchants say, will probably be badly wanted subsequent yr when Russian pipeline fuel flows could be a lot decrease than within the first half of 2022 or none in any respect.
The EU might want to cap fuel demand too, together with capping the worth of fuel, or it dangers worsening the fuel scarcity by inadvertently encouraging demand with the worth cap, Goldman Sachs analysts stated in a Monday report, quoted by Bloomberg.
In the meantime, LNG demand in Asia has elevated in latest weeks as patrons have emerged to top off for late-winter provide. Furthermore, if China’s demand rebounds to 2021 ranges subsequent yr, from depressingly low volumes this yr, Europe could lose the power to simply outbid Asia for additional LNG provide.
By Tsvetana Paraskova for Oilprice.com
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