It’s been another tumultuous few months for natural gas prices, particularly amid what European Commission President Ursula von der Leyen has called Russia’s war on Europe’s energy and economy. Europe is staring down aggressive curtailments of Russian gas supplies and rising consumer utility bills, necessitating austerity measures and beyond to bail out consumers and utilities and prevent a dangerous shortfall this winter. Prices in continental Europe have now topped $20/MMBtu for a year, higher than the previous single-day record. On top of the elevated prices, outrageous spikes higher and lower have become a semi-regular occurrence as the gas market struggles to find balance. And high prices and volatility are not going anywhere anytime soon as Europe braces for a winter with little or even no Russian gas. In today’s RBN blog we look at European gas prices, the latest energy policy proposal from the EC and how U.S. LNG exports fit into the ongoing crisis.
The global gas market has been tight and fundamentally bullish since fall 2020, well before Russia’s war in Ukraine and the resulting sanctions. Since the market recovered from its COVID-induced low point in summer 2020, overall gas (and especially LNG) supplies have struggled to keep pace with global demand despite export capacity additions during that time. The market has seen a perfect storm of weather events, high global demand, low renewable energy output in key regions and, of course, a war that has pitted the largest gas supplier to Europe against the Western world. Prices in Europe, marked by the Dutch Title Transfer Facility (TTF, orange line, Figure 1), representing continental Europe, and U.K.’s National Balancing Point (NBP, yellow line, Figure 1) first climbed above $20/MMBtu in mid-September 2021. While tensions with Russia were mounting at that time, the main drivers of the high gas prices were extremely low gas storage inventories and extremely high carbon prices (see I Won’t Back Down), putting upward pressure on the gas market. By winter, this had catapulted European prices above Asia, marked by the Japan-Korea Marker (JKM, green line, Figure 1); previously a rare occurrence, it’s now the norm.
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