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The gas crisis in Europe is not surprising . for these reasons

The gas crisis in Europe is not entirely surprising: it has been looming at least since June, when inventories began to gradually decline below normal levels during the summer, and the problem has worsened with gas prices more than tripling. quest’year.

Several reasons have led to the transformation of Europe from oversupply to scarcity in two years.

The first reason is due to competition between Europe and Asia for LNG shipments. Most of the supply of LNG is linked to long-term contracts, mainly destined for Asia, which means that the supply in the spot market is less than half.

Furthermore, these contracts are usually tied to crude oil prices, which are currently cheaper than the spot market prices of gas.

This means that buying countries are more likely to stick to their contracts, leaving smaller quantities available for the spot market. Moreover, despite the increase in gas prices in Europe, they remain lower than prices in Asia, which is the largest importing region.

This is because countries from Japan to India are rushing to buy before winter, increasing competition for the small portion of the offer freely traded in the spot market.

The shortage has recently worsened with a sharp rise in demand from China following its swift exit from the Corona crisis, plus Brazil facing the worst drought in a decade that prompted him to use liquefied natural gas to produce electricity instead of generating it from hydroelectric dams.

Another reason for the gas shortage in Europe is the decline in supplies from Russia in I arrive from Ukraine, and this is a question mark that has raised conflicting speculations between the Russians’ inability to pump more or that they are deliberately pushing towards the rapid operation of the Nord Stream 2 gas pipeline, after its construction is completed. in the past few weeks. In addition, freight rates play a role in the fate of shipments and markets in where they will go.

Experts point out that the first step in finding out who will win the shipping battle is to monitor the price gap in Europe and in Asia.

In the financial world, this means observing the spread between futures contracts traded in the Netherlands and the Japan-Korea Marker, the spot price in Northeast Asia, is unlikely to buy LNG.

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