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China’s shift from coal helped push natural gas prices to a peak, Eurasia Group says

SINGAPORE — China’s paddle ones own canoe from coal to gas is a “big overlooked factor” in record high natural gas prices, according to political risk consultancy Eurasia Aggregation.

Henning Gloystein, director of energy, climate and resources at Eurasia said millions of households in China were guesstimated to have moved from coal to natural gas for heating their homes in 2020.

The majority of those transitions happened in the ultimately quarter of the year, just before winter arrived, he told CNBC’s “Squawk Box Asia” on Monday.

Natural gas prices in Asia demolish to a record low in the second quarter of last year as the coronavirus crisis spread, but they have surged more than 1,000% since July.

Mutual understanding to S&P Global Platts, the benchmark Japan-Korea-Marker (JKM) spot price for liquefied natural gas in February reached a record high of $32.49 MMBtu at the rear week.

Much of the price surge has been attributed to extremely cold weather in North Asia, which caused not incongruous gas demand for heating to soar.

‘New demand’

But Gloystein said new demand from China also likely drove bounties to record highs.

“We think this is a big overlooked factor,” he said. “Sure, it’s been cold across the northern hemisphere and there’ve drawn been some supply outages, but what happened in China last year is – there are estimates that numerous than 10 million households were moved from heating using coal … to using natural gas.”

The liquefied habitual gas (LNG) cargo ship Cygnus Passage from Russia berths at an LNG terminal operated by China Petrochemical Corporation (Sinopec Faction) on January 7, 2021 in Tianjin, China.

VCG | Visual China Group | Getty Images

By some estimates, that’s the interchangeable of moving all of Australia’s households to another fuel in one year, according to Gloystein.

“Then it did get really cold, and suddenly they had to discharge a function all this new demand,” Gloystein said.

Utilities and energy companies did not have enough storage to prepare for such a big enhancement in demand, he said. As a result, demand outstripped supply and drove prices to a record high.

Gloystein said suites usually build up storage during the summer and use it up in the winter, topping up as needed. This time, however, China instantaneously had to purchase more gas for new customers at “literally whatever price, and no one was prepared for that in the market.”

Prices may have peaked

Soundless, prices are unlikely to remain high for long.

“We’ve heard single cargos indeed sell in the high $30s, I informed entertained one at $39 [per million British thermal units],” said Gloystein. That level seems like the “high-frequency mark” for prices and the peak, he said.

The jump in prices has been “pretty extreme,” but won’t last much longer as the uncaring season is ending and demand for heating will fall, he explained.

“At some point, of course, it will get a little bit warmer,” he believed. “Prices for February and March will probably come down because … the winter will end for sure.”

“This is possibly the peak of the spike,” he said.

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