O'Melveny Insights 2023

27 Arbitrage Opportunities in Europe May Become More Elusive. The current boom began in 2021 with the spike in European gas prices, then took off after the invasion of Ukraine focused attention on energy-supply security. LNG sellers responded quickly to higher European gas prices, shipping excess LNG and diverting other available cargos to the continent. But several factors have now made it harder to capitalize on continued high prices in Europe. Chief among them is decreased demand, which has been reported and is expected to continue. The rush to supply Europe with LNG may also be overwhelming the capacity of the continent’s infrastructure. At one point this fall, more than 30 LNG ships were reported to be anchored off the Spanish coast, awaiting their turns at the few available LNG unloading terminals. And once that cargo is unloaded, there may be issues with shortage or lack of downstream pipeline capacity to transport the natural gas to where it is most needed. In the year ahead, those seeking arbitrage opportunities will need to pay closer attention to location-specific import capacity and pricing differences. -200 -100 0 100 200 300 400 500 600 -12 -8 -4 0 4 8 12 16 20 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Evolution in gas prices (Q1 2021=100) Y-o-y change in consumption in bcm United States China OECD Europe India Asian spot price North American spot price European spot price Source: “Gas Market Report, Q4-2022 including Global Gas Security Review 2022.” International Energy Agency, Gas, Q4.