Analysts have sounded the alarm - Europe is on the brink of a potential energy crisis in the coming months. This is due to China's dramatic increase in demand for Liquefied Natural Gas (LNG) contracts, which has created an unprecedented strain on global supply chains.
In the winter months, Europe found itself on tenterhooks as it faced a real possibility of running out of gas. Russia’s invasion of Ukraine sparked a crisis that saw wholesale gas prices spiral far beyond the cost the continent was used to paying and the supply chain stretching ever thinner. Ultimately, it was only sheer luck that Europe managed to survive the winter without any serious distress. This was thanks to lower demand because of milder temperatures which meant countries could keep storage levels higher than they anticipated.
European countries are facing a potential catastrophe as they move towards next year. Chinese demand for LNG could reduce their ability to build up their storage, leaving them in a difficult situation. This could be especially concerning because China's economic growth will likely increase, driving global demand and putting even more stress on storage reserves that are already low.
The easing of coronavirus restrictions in China is providing a boost to economic activities in the country, which will likely result in an increased demand for natural gas. With around 23 bcm of liquefied gas projected to be produced this year, 80% of it is expected to be taken up by China. This leaves the EU with limited supplies to store for next winter. It is vital that supply lines are established to ensure reliable sources of energy over the coming months.
The competition in the gas market for these contracts could cause further price volatility in the energy market. With global markets still not fully recovered after the energy crisis we have seen over the past few years, this could be detrimental to energy consumers' bills.
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