Natural Gas Prices Crushed Versus Last Year, But Global Gas Price still 5 Times U.S. Level

For six months, European natural gas prices skyrocketed higher almost every day. The soaring prices made sense. Gas inventories in Europe were low following higher-than-normal demand last winter. Economies were recovering from COVID-19. Russia was curtailing gas deliveries. It all added up to a likely supply shortage during the winter of 2021-22. And the market did what markets do: anticipate. Even though the next winter season was months away, gas buyers went to work, stocking up on supplies like squirrels gathering nuts. The more prices increased, the more panic buying kicked in. By last Tuesday, October 5, the European TTF price was up more than 5X what it had been on May 1. Then, on Wednesday, a few comments from Vladimir Putin seemed to pop the bubble, and within a few days the Dutch TTF price was down 27%. Is everything OK now? Was the gas-price run-up all just speculative buying and short covering? Or is a supply crunch still on the horizon, and this is just the calm before the storm? In today’s RBN blog, we explore those questions.

Talk about whiplash! Not that long ago, the global LNG market was reeling from the effects of the pandemic: stunted demand, severe oversupply, brimming storage, and record low prices, all of which led to a squeeze on offtaker margins and mass cancellations of U.S. cargoes. Within a matter of months, however, the market has done a 180. Global supply has tightened significantly as cargoes can’t get delivered fast enough, and international LNG prices are near two-year highs. U.S. LNG exports and domestic feedgas demand are at record highs in December, for the second straight month. That’s not to say U.S. LNG producers and the domestic gas market are out of the woods. Cancellations are rearing their heads again — not because the demand isn’t there, but because of logistical constraints and a severe vessel shortage, which are injecting more uncertainty into the market. Today, we provide an update on domestic LNG exports and the immediate factors driving them.

Last week, panic over gas availability and energy reliability this winter sent international natural gas and LNG prices above $30/MMBtu for the first time. Asia’s Japan Korea Marker (JKM), Europe’s Dutch Title Transfer Facility (TTF) and the UK National Balancing Point (NBP) once again had multiple days in a row of all-time high settlements, as the undersupplied market struggles to find balance. The global shortage has also impacted the gas-rich U.S. market, which is linked to it through LNG exports. The U.S. markets are tight and might also face undersupply this winter, albeit, probably not to the point of triggering reliability issues that are already emerging abroad. If it did, the U.S. exports nearly 10 Bcf/d of LNG, which could be throttled back to free up additional supplies for domestic use. Nonetheless, Henry Hub prices climbed to nearly $6/MMBtu last week and hit post-2008 record highs. This is by no means the first-time various markets have faced considerable imbalance. In fact, last year at this time we were coming out of a period of widespread oversupply and record-low gas prices. But it’s certainly foreboding that it’s not even winter yet, and prices are skyrocketing to new heights. So the big question on everyone’s mind is how bad could this get? The answer of course is complicated and heavily dependent on weather. In today’s RBN blog, “To the Moon and Back – U.S., International Gas Markets Strap in for Wild Winter Ride,” Lindsay Schneider takes a look at how we got here, how LNG has intertwined the international energy markets more than ever, and what that means for the winter ahead.