Baby, It’s Cold Outside - Geopolitical Tension with Russia Sends Global Gas Soaring Again

Global natural gas and LNG prices have spent the summer going from high to higher to the highest on record. The major European indices hit post-2008, and then all-time highs multiple times throughout the summer — even surpassing Asian prices on a handful of days. At the same time, Asian prices have set all-time seasonal records and are now sitting just below the previous single-day high settle from this past January. Usually, as the weather cools heading into fall, so do prices, but that’s unlikely this year as the European gas storage inventory is at the lowest level for this time of year than we’ve seen in recent history, and the time to replenish stocks for the winter is rapidly running out. The incredible bull run for global gas prices has been underpinned by high demand for LNG and the cascading effect of a supply squeeze in Europe, brought on by the triple threat of low domestic production, decreased imports from Russia, and a scarcity of incremental LNG cargoes. Not only is this driving record-high gas prices and increased volatility now, but the low inventory means sustained high prices for the heating season ahead. In today’s blog, we take a look at recent global gas price trends and the precarious European storage situation ahead of what is shaping up to be an incredibly bullish winter.

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.

Even as winter starts to wind down, global natural gas prices remain elevated as rising tensions between Russia and the Western world have destabilized European energy markets and pushed LNG, and U.S. LNG in particular, to center stage. From a markets perspective, the story of the past year has been high global gas prices — a strong incentive for LNG producers to push production facilities to operate at peak capacity and produce additional cargoes. The tight market has also spurred demand for new long-term sales and purchase agreements (SPAs), creating momentum for a potential new wave of LNG development. But while gas prices in Europe and Asia have been elevated all year, they have not been elevated evenly. The Asia-Europe price spread has swung dramatically from favoring Asia last spring and summer to favoring Europe this winter, and U.S. export destinations have swung with it. Last summer, almost no destination-flexible LNG produced in the U.S. was landing in Europe and now Europe is consuming U.S. LNG at record levels. In today’s RBN blog, we look at how global price spreads impact U.S. LNG export destinations and what the strength in European demand means for the future of LNG development.