Russia Gas Cutoff Sparks Europe-Korea-Japan LNG Battle... European Gas Prices Surge Again

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] LNG (liquefied natural gas) vessel charter rates are rising due to Russia's reduction in gas supply. As European countries are forced to import LNG from the United States, Qatar, and others, demand for LNG vessels is soaring.

The Wall Street Journal reported on the 22nd (local time) that LNG vessel charter rates are increasing as European countries compete with South Korea and Japan to secure LNG vessels. According to the Korea International Trade Association, South Korea was the world's third-largest LNG importer last year, and Japan was the second-largest importer after China. The previous structure, where Europe secured gas through Russian pipelines and the three East Asian countries used LNG vessels, has been disrupted by Russia's invasion of Ukraine, leading all parties to rely heavily on LNG vessels.

According to commodity trading service provider Spark, the current daily charter rate for LNG vessels traveling from the U.S. to Europe is $64,000. However, from September to November, LNG vessel charter rates are rising to $105,250. Compared to the $47,000 charter rate around this time last year, this is more than double. LNG charter rates had already exceeded $100,000 in June but declined after a fire at a U.S. LNG export facility; recently, they have been rising again.

Jason Peer, head of division at ship brokerage firm Poten & Partners, said, "Within the next two months, there is only one LNG vessel available for charter in Asia, and there are no LNG vessels available to transport gas via the Atlantic."

As LNG vessels become scarce, orders are increasing. According to Clarkson, a shipping company based in London, the total value of LNG vessel orders placed with shipbuilders so far this year has reached $24.1 billion, already surpassing last year's annual order value of $15.6 billion. According to Rystad Energy, the price of new LNG vessels has also risen from $190 million a year ago to nearly $240 million currently.

Since LNG charter rates are reflected in gas production costs, they are a factor driving up gas prices.

On this day, European natural gas futures prices surged again, rising more than 20% intraday. This was due to Russia's state-owned gas company Gazprom announcing it would halt operations of the Nord Stream 1 pipeline connected to Germany for three days starting on the 31st for maintenance.

Natural gas futures prices on the Dutch TTF exchange rose as much as 20.6% intraday, soaring to 295 euros per megawatt-hour (MWh). Bloomberg reported that after partially giving up some gains later in the session, the closing price was 276.75 euros, up 13% from the previous day. Currently, European gas futures prices are about 15 times higher than the average for this time of year.

As natural gas prices surged, the euro plummeted, hitting its lowest value against the dollar in 20 years. Concerns grew that the spike in gas prices would worsen inflation and push the European economy into recession.

On this day, electricity futures prices for delivery in Germany next year surged more than 25% intraday on the European Energy Exchange, breaking through 700 euros per MWh for the first time ever and reaching 710 euros. Currently, German electricity prices are about 14 times higher than the average for this time of year over the past five years.

Concerns are also growing that the energy supply shortage will plunge the European economy into a long-term crisis. Belgian Prime Minister Alexander De Croo said at a press meeting that "due to the surge in gas prices, Europe could face five to ten very harsh winters in the coming years."

This content was produced with the assistance of AI translation services.