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Global energy crisis: in the midst of war, Europe and Asia compete for market and put pressure on prices

A ship loaded with LNG near the Sakhalin regasification plant in Japan, the world's second largest importer of LNG REUTERS/Sergei Karpukhin (RUSSIA)/File Photo
A ship loaded with LNG near the Sakhalin regasification plant in Japan, the world’s second largest importer of LNG REUTERS/Sergei Karpukhin (RUSSIA)/File Photo

The competition between the European Union and the largest countries in Asia is once again putting pressure on the gas market, especially the market for Liquefied Natural Gas (LNG), which is transported in large “methane tankers” and which is predicted to their prices are firm and until well into next year.

China, Japan and South Korea are, in that order, the main importers of LNG in the world, but as a result of the Russian invasion and the war in Ukraine and the reduction of the supply of Russian gas through the gas pipeline to the countries of Western Europe, the EU accelerated imports to rebuild its reserves and approved a plan to demand decrease before the arrival of boreal winter.

Europe is committed to completing 80% of its gas storage capacity (90% in the case of Germany) before the beginning of November, but It will be much more expensive for Europeans to replenish their reserves: about 50,000 million euros (about USD 51,000 million), 10 times more than the historical average. Keeping the large storage facilities full would be a way to ease Russia’s gas shortage and be better prepared for the peak winter months.

The saving means rationing measures, measures already announced in Germany and France, and in the near future, much higher prices. For example, in the Netherlands the price of energy for an average family is already 5,000 euros a year, 150% more than the 2,000 euros it cost two months ago, reported the Dutch media outlet Telegraaf.

Not everyone can afford the bill. Vattenfall, the largest company in the Dutch gas market, has reported that one in ten of its customers are not paying their bills on time and will face additional charges at the end of the year. “Around 40% of our clients pay little, and with 10% we are talking about 200 euros per month,” he said. Martin Neef, the company’s spokesperson. “Energy prices will continue to be high, so there is little we can do but pass the cost on to consumers,” he said.

The European Parliament, in the session where the gas saving plan was agreed
The European Parliament, in the session where the gas saving plan was agreed

In France, meanwhile, Congress approved a 20 billion euro package of measures to help families struggling to cope with rising energy and food prices. The package includes setting a maximum price for gas and electricity and increasing the fuel subsidy from 18 cents per liter to 30 cents in September and October.

Such measures, the IMF warned, could worsen Europe’s energy crisis. The organic supported the aid for the poorest sectors, but said that the rest of the consumers should support the higher prices, so that the energy saving would be promoted. So far, however, European politicians have introduced price controls, subsidies and tax cuts to cushion the blow to energy prices across the continent.

The coming months

Tensions are likely to rise in the coming months as competition between the EU and Asian countries for LNG supplies intensifies. It turns out that in recent months China, the world’s main importer, has imported little due to the lower demand for gas due to restrictions in cities such as Shanghai (25 million inhabitants) and other large urban centers, due to their “Covid-19″ policy. zero”.

But as China, Japan and South Korea increase their purchases ahead of winter, the pressure on gas prices and energy in general will increase.

“If there was less LNG available, Europe will have to destroy demand” (Samantha Dart, head of gas sector research at Goldman Sachs)

“If on top of that economic activity in China is becoming more visible again, there will be a significant change in the balance of the LNG market. If there were less LNG available, Europe will have to destroy demand” (that is, consume less) he said. Samantha Dart, head of gas sector research at Goldman Sachs, for the Financial Times.

global appeal

In this situation where Argentina’s natural gas reserves, especially those related to “unconventional” resources in the Vaca Muerta geological formation, are attractive as another source of supply for European countries.

So far, however, there has been more potential than reality. Although Vaca Muerta is considered the second largest “unconventional” gas reserve in the world, its development and production is limited by the lack of transport capacity for internal supply and the lack of liquefaction plants and outlet ports for foreign markets, such as Europe.

Oil and gas drilling platform in Vaca Muerta in Neuquén REUTERS/Agustin Marcarian/File Photo
Oil and gas drilling platform in Vaca Muerta in Neuquén REUTERS/Agustin Marcarian/File Photo

In fact, despite its potential, Argentina has almost no weight in the world’s natural gas market. According to him Statistical Review of World Energy 2022 British Petroleum, perhaps the most famous international publication of comparable data in the energy sector, in 2021 the country produced 38.6 billion cubic meters, equivalent to only 1% of global production, against 934 in the USA, 702 from Russia, 257 from Iran, 209 from China and 177 from Qatar. Those 5 countries have two thirds of the world’s production. But China also imports and Australia, outside the Top 5, is one of the main exporters, along with the US (which consumes 88% of the gas it produces) and Qatar, LNG, and Russia is of the gas complete.

The main gas exporters, according to a report by Roberto Carnicer, director of the Energy Institute of the Universidad Austral
The main gas exporters, according to a report by Roberto Carnicer, director of the Energy Institute of the Universidad Austral

in the ground

In the country, the global context opens up important opportunities in an extremely challenging internal context.

Although Argentina has huge reserves in the subsoil, it is not yet self-sufficient. In 2021, it produced 38.6 billion cubic meters of gas, but consumed 45.9 billion cubic meters, 1.1% of the world’s total, covering the difference with net imports. The promise is overdue, in 2011, when the potential of Vaca Muerta was already known, the country produced 37.7 billion cubic meters of natural gas (1.1% of the world’s total) and consumed 43.8 billion cubic meters of million (1.4% of the total world). In other words, in 10 years, despite the huge potential of Vaca Muerta, production increased by a meager 2.4 percent.

According to a recent report by the “Economy and Energy” advisory body, Nicholas Arceo, As a result of a policy in recent years of cheap energy, there has been an excessive increase in domestic demand, to the point between the first half of 2022 and the same period of 2019 there has been a 17% increase in the demand for natural gas in the residential segment and on the electricity. 18%, leading to a trade deficit of USD 2,648 million in the first half of this year, the highest since 2014. Subsequently, the tariff policy led to a strong increase in energy subsidies, which Arceo projected at USD 15.5 billion for this year, the highest number in ten years, only higher than the records of 2015.

According to Arceo’s calculations, 68% of the increase in energy imports is explained by the increase in diesel and natural gas imports, in both cases the responsibility of state-owned companies or state companies such as YPF, Cammesa and Enarsa.

Argentina's energy imports in the first half of the year
Argentina’s energy imports in the first half of the year

It is therefore necessary not only to increase production, but also to use resources more rationally and prevent waste.

In the meantime, the Government hopes that the first part of the “Gas Pipeline of President Néstor Kirchner”, between Treatyén (Neuquén) and Salliqueló (Buenos Aires), will be ready by the winter of 2023. It will be possible to let the gas over ultimately canceled. imports, which this year was one of the main holes through which the reserves of the Central Bank were drained. To export, it would be necessary to build at least one liquefaction plant, an estimated investment of no less than USD 5,000 million, and to adapt a port of departure (everyone points to Bahía Blanca).

As long as the conflict between the Western bloc and Russia continues, as international political analysts seem to agree, Argentina’s gas potential could be a major attraction for European investments, provided it offers macroeconomic stability and the predictable rules of the game.

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