Strong energy competition from Asia - Europe may face higher natural gas prices
Europe is facing increasing competition from Asia for limited natural gas supplies as national reserves dwindle and demand surges in the summer. Analysts warn the EU will struggle to win the race.
Centralized Asian economies such as China, Vietnam and South Korea are better equipped to negotiate gas purchase deals on the spot market, leaving free-market-oriented Europe at a disadvantage.
The EU gave itself the power to coordinate energy purchases as a group after Russia invaded Ukraine, but the policy has not worked well. This means that even if the US-Iran peace deal remains in place, Europe could face higher gas and electricity prices in the coming months.
Under EU rules, member states must replenish their gas reserves to at least 80 percent of national capacity by December. Normally, this is done in the summer when demand and prices are lower. Energy traders typically take advantage of these lower prices to buy and store gas in the summer, then sell it at a profit in the winter when demand and prices are higher. But this year, high summer prices have reversed that incentive, leaving the bloc’s storage levels below the five-year average.
Events in Asia could make the situation worse. Analysts warn that a hotter Asian summer will increase the use of air conditioners, boosting Asian demand for gas. Asian countries rely heavily on long-term supply agreements, but higher demand and falling reserves could push them increasingly to buy gas in the spot market, where prices are set daily and tend to rise immediately when demand increases. That would put Asian countries in direct competition with Europe, which has relied heavily on the spot market this year to secure supplies.
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