With the war in Ukraine ongoing and Europe largely cut off or quitting Russian natural gas imports, many feared that global gas prices would skyrocket this winter, but prices have fizzled out instead and are at their lowest level since September 2021. That’s not to say gas prices are low, as they are still well above historic norms and high enough to incentivize LNG imports and the development of future LNG capacity. But despite losing its largest gas supplier, and prices running up in the months ahead of this winter, Europe appears to be in much better shape than it was last winter and gas prices have been relatively calm and on the downswing. So why is that? The difference between this winter and last largely boils down to storage inventories and the ability to attract LNG cargoes. In today’s RBN blog, we look at the European gas market, the impact of U.S. LNG supplies, and what it all means for developing LNG projects.
As we’ve said numerous times over the past few years, the global gas market is fundamentally bullish and even with prices falling now, it’s simply unprecedented in the modern era for prices to stay at this level for this long. Prices in Europe, marked by the Dutch Title Transfer Facility (TTF; orange line in Figure 1), have averaged more than $37/MMBtu since September 2021 and prices in Asia, marked by the Japan Korea Marker (JKM; green line), have averaged more than $33/MMBtu. (Before the recent runup in prices, the previous single-day record settlement in either market was just $19.70/MMBtu, which JKM recorded on January 14, 2021, as transportation constraints in the Panama Canal caused a shipping nightmare for Asian LNG consumers.) Current prices are at their lowest level since September 2021, but while a combination of high storage inventories, mild weather and abundant LNG imports have prevented Europe from a disastrous winter and relieved pressure on prices, the continent is not out of the woods yet. Europe is facing an uncertain energy future — one almost surely with significantly diminished Russian gas — and is still very much figuring out how all the pieces of that future will come together.
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