18 January 2023 | Other

Gas prices in Europe are recovering amid rising demand in Asia

Signs of China's economy falling, perhaps to its lowest point, have affected the rise in gas prices in Europe. LNG shipments to Western countries may decline due to the country's economic recovery.

On Monday, futures fell by 14% and at the moment they are up by 4.6%. Demand from China plays a key role for Europe, where a short-term cold snap is expected this week. Meanwhile, most of the winter is still to come. The price increase is also caused by a drop in gas supplies from Norway.

Some Chinese buyers are being forced to reroute LNG cargoes to other countries because of the large amount of gas in reserves. However, if the economy recovers quickly, consumption will increase and competition for supplies from Europe will intensify, and cold weather could make things worse. Lower prices are allowing other Asian countries, such as India and Thailand, to return to the LNG market and take advantage of the favorable situation.

Rob Butler, a partner at Baker Botts LLP, said that demand in China will definitely recover, but he doubts that the 2021 peak target will be reached. He said the general consensus is in favor of a demand recovery, but not to the highs of 2021.

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