It's Not Enough - LNG Outages and Russian Aggression Send Global Gas Prices Soaring - Again

Escalating Russian aggression and LNG supply shortfalls, exacerbated by outages in the U.S. and Australia, have put the pressure back on international gas markets and sent prices in Europe and Asia back toward their winter highs. Around the world, high prices have pushed some end users out of the LNG market and spurred on the global, cross-commodity energy shortage that has had utilities and governments scrambling, sometimes unsuccessfully, to keep the power on. The European Union (EU) is pushing its members to reduce gas consumption by 15% through winter and parts of Europe face austerity measures. Some European countries are turning back to coal generation as the continent prepares for the prospect of a winter with less — or potentially even no — Russian gas. In today’s RBN blog, we look at where things stand in the international gas market and the ramifications for the winter ahead and beyond.

Pressure has been building in the global gas market for some time. There have been some lulls and intermittent periods when the pressure has backed off and prices slipped, but the market has been tight and fundamentally bullish since fall 2020. 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 demand, even with U.S. LNG export capacity additions of about 2 Bcf/d since fall 2020 and an increase of 4.5% in global LNG trade in 2021, according to the International Gas Union (IGU). The market has seen a perfect storm of weather events, high global demand, low renewable output in key regions and, of course, a war that has pitted the largest gas supplier to Europe against the Western world, sending global gas prices repeatedly to all-time highs and upending the historical pecking order for prices. Over the years, Europe has increased its reliance on Russian gas, even as the U.S. and even some countries within Europe cautioned that Putin could use it against them, and tensions over gas supplies began well before Russia’s invasion of Ukraine. And while Russia has long denied doing any such thing, it is difficult to see how the curtailments, slowdowns and shut-offs are not politically motivated. Russia's state-owned Gazprom warned Monday that flows on the Nord Stream 1 pipeline to Germany would be cut to 20% of the pipe’s capacity (from 40%), effective Wednesday –– it blamed sanctions-related trouble with a turbine (more on this in a moment).

Storage and Pricing

Russian gas exports to Europe were well below seasonal norms in the spring and summer of 2021 and LNG imports sagged as U.S. exports went mostly to Asia and Latin America. With low levels of LNG and piped imports from Russia, Europe struggled to refill its depleted storage inventories (see It’s Too Late) and, as a result, inventory levels in 2021 (navy-blue line, Figure 1) began withdrawal season at their lowest in over a decade.

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