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Friday, 3 December 2021

Why this Global Energy Price Hike?

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1) Update: 11 December 2021:US exports more LNG
2) Update: 17 December 2021: Asian LNG price jumped 21.1%
3) Update: 20 December 2021:US LNG Diverted to Europe
4) Update: 24 December 2021:China is Biggest LNG Importer

3 December 2021

There is always this rise in energy price during the winter months because the energy demand will be high especially when there is a colder winter expected.   In these months from November to March,  the energy price could fluctuate between 10% to about 50% in the past depending on how cold will be the weather and how long they will have to run the heating system during the winter months.  

But what happened this year?  Why our energy price has gone up so high,  some more than 500%?  This article will try to find out the answers.

What has happened?

This year,   the energy price has gone crazy.  Natural gas prices in  Asia went up by about 5 times or 500% compared to last year and the Crude oil price was also up by 60%.   The US's natural gas price is also not spared.  It went up by about 120%,  not as high as Asia and UK for some reasons.  But it lost about 100% in the last 3 months as shown in the following chart.  

double-click to enlarge the picture

The rise in crude oil price and natural gas price in the US could be caused partly by the prediction ahead of the extremely cold winter months.  It could be also partly influenced by higher gas prices in Europe and Asia.   But the European and Asian 500% jump in gas price has just gone crazy.  It is definitely due to other reasons besides the colder winter.  But what are these reasons?

Why so very high? 
   
There was speculation about the Russian was behind this crazy pricing.  There was also a strong view that the higher demand was caused by countries going for clean air,   converting all power generation to natural gas firing.   Another guess was about China turning to Russian gas for the supply of natural gas to supplement the power shortage happening in recent months.  There were reports that China had been shoring up natural gas supplies.

Russia Denied being the Cause


On the other hand,  the Western World is pointing out that China has stepped up its effort to buy natural gas at record level through the Russian pipelines in the North.   There were instructions
"asking its top National oil and gas companies in China to step up procurement, shifting its LNG purchase strategy away from volatile spot markets and boosting the supply of alternative generation fuels like coal in the winter months.".   The record-breaking buying saw China nearly doubled its gas imports from Russia from about 2.3 M mt of oil equivalent in July/August 2020 to 3.7 M mt in July/August 2021.  They import went up to This instruction came amidst China was facing severe power shortages,  causing frequent power supply cuts after having banned the imports of the Australian Coking coals earlier in the year.  China's natural gas consumption is about 370 Bcm in 2021. This consumption is almost equal to the consumption of the whole of Europe. 

As such,  the World,  especially the European countries,  must have been caught by the sudden increase in China's natural gas demand.   They might not have the time to increase their storage capacity to tie over the period.



Will the Natural Gas Crisis go away?

It is not a matter of when the natural gas crisis will go away but just a matter of when.  This is because "the world has proven reserves equivalent to 52.3 times its annual consumption. This means it still has about 52 years of gas left".

The Natural Gas crisis started by China and it will end by China.  China started increasing its import of natural gas from Russia in August 2020.  It has almost doubled its supply in a year.  This Russian article suggested that Russian is expected to supply 10 Bcm or 9.0 million mt to China in 2021. 

Because the Asian Natural Gas price is nearly 5 times that of the US,  there was an afford made by various Chinese conglomerates like CNOOC,  Sinopec &  other agents to buy LNG from the US at record-breaking levelsThis is despite the import ban of the US LNG after the trade war in 2019.    The test mode of bringing the US gas shall start end of 2021 and if successful,  the gas supply should flow by the first quarter of 2022.  

The following animated chart illustrates and expected the natural price hike to ease very soon if China can start importing natural gas from the US.




As for the very cold winter predicted earlier,  the authorities are now questioning the whereabouts as they have recorded mild weather patterns in November.  The World Metrological Organisation (WMO) has this forecasting model.  It worked out in November for many parts of the World including China and produced this chart.  The chart shows only the pacific ocean areas have some spots of surface air temperature lower than normal temperatures.  They predicted widespread warmer-than-average sea surfaces & air temperatures for December–February 2021-2022. 

In Conclusion

The spike in natural gas supply in Europe and Asia is likely to be caused by the sudden demand in China as they doubled their pumping volume recently.  This has made the price of natural gas gone sky high as China now turned to buy natural gas from the US.  We should see energy prices being tamed as soon as China has solved its energy problem hopefully by the first quarter of 2022. So far,  there are already report about Asian LNG price has fallen because China has muted its import.  This move has also caused Russia to increase its gas supply to European countries.



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Update:  11 December 2021

a)  US Export more LNG

The US Energy Information Administration (EIA) reported that the US's weekly LNG export increased by about 13% or 0.283 BCM (10 bn ft3) from 2.37 BCM (84 bn ft3) on 1 December to 2.69 BCM (9.5 bn ft3) on 8 December.     EIA said the US's LNG export rate would be increased by  20% from 2.69 BCM(9.5 bn ft3) by the end of Nov 2021 to 3.23 BCM(11.4bn ft3/d) by end of 2022.   It also expected the US's LNG export rate to increase by 72%  by 2024 to about 4.61 BCM/d(16.3bn ft3/d).  This 4.61  BCM/d  in 2024 will be more than enough to supply 70% of China's NG daily consumption which is around 6.34 BCM/d for 1.4 billion or 16 cubic feet per capita per day.   It is likely also that the EIA's expectation to increase LNG export by 20% in 2022 might help to solve the supply problem now happening in Europe and Asia.


b)  Putin ordered to increase NG Supply to Europe





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Update:  17 December 2021

Asian LNG price rises due to supply concerns in Europe.  The Asian LNG price for February rose to $43.35 per metric million British thermal units (mmBtu), up 21.1% from $35,8 from the previous week.



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Update:  20 December 2021

Although the Chinese were buying the US LNG,  it is unlikely to see the LNG price in the Asian region easing soon.  This is because they are re-shipping & diverting the US LNG shipment from Asia to Europe for better selling prices.



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China Surpassed Japan as World’s Biggest LNG Importer Through October.  China became the world’s largest liquefied natural gas (LNG) importer during the first 10 months of 2021, according to data from government agencies. 




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