With the war in Ukraine ongoing and Europe largely cutting or abandoning imports of Russian natural gas, many feared global gas prices would soar this winter, but prices have faded and are at record lows from September 2021. This does not mean gas. prices are low as they are still well above historical norms and high enough to incentivize LNG imports and the development of future LNG capacity. But despite losing its main gas supplier and prices rising in the months leading up to this winter, Europe appears to be in much better shape than last winter and gas prices have been relatively calm and on the decline. So why is this? The difference between this winter and last comes down largely 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 US LNG supplies and what this all means for developing LNG projects.
As we have said numerous times over the past few years, the global gas market is fundamentally bullish, and even with prices falling now, it is simply unprecedented in the modern era for prices to remain at this level for so long time Prices in Europe, marked by the Dutch Title Transfer Mechanism (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), average more than $33/MMBtu. (Prior to the recent price hike, the previous record single-day settlement in either market was just $19.70/MMBtu, which JKM recorded on January 14, 2021, as transportation restrictions 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 spared Europe a disastrous winter and eased pressure on prices, the continent is not out of the woods yet. Europe faces an uncertain energy future, almost certainly with a significant decline in Russian gas, and is still thinking hard about how all the pieces of that future will come together.
