Global gas-to-oil fuel switching to jump 80% as European, Asian gas prices soar

Global oil demand from gas-to-oil switching could jump by more than 80% over the next six months after soaring prices for natural gas and LNG push more power producers, refiners and industrial users to burn fuel oil and other liquid fuels, according to estimates by Platts Analytics.

Refiners, power producers, and major industries will account for 633,000 b/d incremental liquids demand in the first quarter of 2023, compared to around 350,000 b/d of incremental demand in Q3 2022, Platts Analytics estimated.

Day-ahead gas prices across Europe rose on Sept. 6, bolstered by continued market concerns around winter gas supply in Europe after Russia’s Gazprom announced the indefinite suspension of gas flows to Germany via the Nord Stream pipeline.

Platts assessed Europe’s gas price benchmark TTF month-ahead at a record-high Eur319.98/MWh on Aug. 26, which fell back to Eur237.98/MWh on Sept. 6 but was still four times higher year on year. S&P Global Commodity Insights data showed.

LNG prices have also climbed since the start of the Russia-Ukraine war, with facility outages worldwide adding to the increases.

As a result, most Asian countries have also been dealing with an energy crisis and refraining from purchases to cut soaring energy import bills as prices advance. Asian spot LNG prices have risen tracking a tight Atlantic Basin, with the JKM benchmark approaching all-time highs again in August. The daily physical assessment reached $71.01/MMBtu on Aug. 25, the highest level since March 7, when the benchmark hit a record-high $84.76/MMBtu.

On a Btu equivalent basis, benchmark Europe gas and Asian LNG prices currently stand five to six times higher than high sulfur fuel oil values, incentivizing widespread gas-to-oil switching at sites capable of using alternative fuel.

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