Author: Zhao Ying

At the same time of the growing natural gas crisis in Europe, Asian countries such as Japan and South Korea have also joined the battle for natural gas, further aggravating the upward risk of natural gas prices.

Japan and South Korea, the world's second-and third-largest importers of liquefied natural gas, are busy ensuring supplies in winter and next year, amid fears that natural gas prices may rise later this year as European demand increases, according to media reports on Friday.

The CEO of an Asian natural gas company saidAlthough natural gas importers usually hoard natural gas supplies for winter in the summer, this year's hoarding is earlier than usual to secure LNG energy supplies between the end of this year and 2023.Although the move has not yet had a significant impact on natural gas prices, late buyers are likely to face higher prices.

Toby Copson, head of global trade and consulting at Trident LNG, a natural gas trading company, said Japanese and South Korean companies were signing large-scale long-term LNG procurement contracts in which buyers and sellers were able to lock in prices within a specific time frame, with price locking periods expected to last for three months in November, December and January.

Copson pointed out:

Japan and South Korea face serious formal problems in terms of energy security. What they really care about is the short -, medium-and long-term situation. I think,From this year to the first quarter of next year, we will see the competition intensify, (Europe and Asia) will compete to drive up market prices.

Asia has always been the preferred destination for liquefied natural gas. China, Japan and South Korea are the world's top three importers, and the benchmark price of natural gas in Asia is several times higher than that in Europe. However, due to growing demand in Europe, the European benchmark natural gas price TTF is now much higher than the Asian benchmark price. Since late July, natural gas transported to Europe via Nord Stream 1 has fallen to 20% of production capacity, and further cuts are possible in the future. European natural gas prices have risen nearly fivefold from a year ago.

Rising prices in Europe mean trading companies have more incentive to ship liquefied natural gas there for higher profits.The spread is so wide that, in some cases, traders in long-term contracts in Asia can terminate existing contracts, pay liquidated damages and resell them to Europe at a profit.

It is also worth mentioning that while countries such as Japan and South Korea can afford higher prices to some extent, cash-strapped Asian developing countries have to bear the brunt of soaring prices.

One trader said:

Current market dynamics mean that "Asia needs to pay a higher price" to buy natural gas. Although the trader has not seen a similar situation, it is not impossible before winter comes.

At present, there is still a high degree of uncertainty about the level of natural gas reserves in Europe and the supply of Russia's Sakhalin 2. The Sakhalin 2 project accounts for 10% of Japan's LNG imports after the Russian government issued a decree calling for the establishment of a new company to take over oil and gas development projects.