A pending global fight for liquefied natural gas (LNG) cargo threatens to push prices even higher as Europe needs to secure more supplies than usual for the winter and buyers in Asia are willing to pay far more than in the past, according to a report on Sunday.

The price of LNG has already reached multiyear highs, having more than doubled since the outbreak of the U.S.-Iran war.

While prices remain below the peaks reached after Russia's invasion of Ukraine in 2022, analysts warn that competition for cargoes could escalate in the coming months as developing countries in Asia that were priced out of the market during the last crisis are now more willing to pay to limit damage to their economies, a report by The Financial Times (FT) said.

This could drive prices for European buyers even higher as the EU prepares to enter the winter months with the lowest gas inventories for at least 15 years.

The willingness of these so-called price-sensitive Asian buyers to pay more rather than risk shortages amounts to a "fundamental shift in the gas market," Takayuki Ueda, chief executive of Japan’s Inpex Corporation, told the FT.

Asian demand

"India and Pakistan seem to be very accustomed to price volatility now," he said. "They still have a lot of enthusiasm to buy," he added.

"We have seen both Pakistan and Bangladesh buy multiple LNG cargoes at $25 per MMBtu. We didn’t see that in 2022," said Martijn Rats, analyst at Morgan Stanley. This means that Europe will need to pay even more this time around, he warned.

Developing countries in Asia have few options to further reduce their gas demand, having already cut consumption since the start of the U.S.-Iran war, causing even blackouts in some regions.

Many countries on the continent, including advanced economies such as South Korea and Japan, have also increased their use of coal, but energy executives say there is little scope for more fuel switching.

In Europe, there are also a few easy remaining options to reduce demand.

Demand was already dented before the U.S.-Iran war brought shipping in the Strait of Hormuz to a near standstill, tightening global supplies. Consumption cuts made in 2022 are largely still in place, suggesting gas prices would need to climb much higher to knock remaining demand, Goldman Sachs analysts said in a note earlier this month.

As such, competition between Asia and Europe for LNG cargoes is therefore "inevitable," according to Anders Porsborg-Smith, a senior partner at Boston Consulting Group (BCG).

Asian LNG spot prices are currently not high enough to draw cargoes that would otherwise go to Europe. That could change if Asia’s biggest LNG importer, China, starts buying again after a summer hiatus or if freight rates drop, making it cheaper for U.S. LNG to sail to Asia.

Some Asian countries have also turned their attention to securing long-term LNG supplies to reduce the chances of having to compete for spot cargoes in the future.

While benchmark LNG prices have surged, prices for long-term deals have remained relatively steady owing to a looming wave of new capacity, mostly in the U.S., that will start operating within the next three or four years.

"We are seeing that they (Asian countries) are keen to sign off on long-term contracts again," said Guido Brusco, chief operating officer for global natural resources at Italian oil major Eni.

"They want long-term because they don’t want to be exposed to the spot (prices)," he told FT.

2022 echoes

However, in Europe, some buyers said they were hesitant to sign up to long-term deals, fearing they could contravene strict new EU regulations that demand importers measure and report methane emissions.

Alexandros Exarchou, chair of Greece’s Aktor Group, which recently signed a long-term deal with U.S. supplier Venture Global, said he expects the EU to renege on the methane regulations after a frantic race for LNG supplies over the winter and inflationary pressures from surging energy prices.

"If they haven’t understood it already, they will," he said.

"If it’s a warm season, we’ll be OK; if it’s a normal season, we’re going to be massively short (of gas), and if it’s cold, we are going to see the same prices as we did in 2022," said Porsborg-Smith.