American natural gas is rapidly capturing the European market: in the first ten days of 2022, the volumes of LNG purchased by European countries from the United States reached records and exceeded supplies from Gazprom by five times. However, this situation will not last long: the weather and renewed demand growth in East Asia will prevent transatlantic supplies from dominating for too long. Experts believe that pre-crisis gas prices in the EU are unlikely to recover, not only by the end of winter, but also by the end of this year. Details – in the material “Izvestia”.

Gas price rally in Europe

In December, the situation on the EU gas market was close to panic – for the first time, prices exceeded $ 2,000 per thousand cubic meters. The difference with US prices at Henry’s Hub in Texas was almost 20 times, but European prices exceeded Asian prices as well, which does not happen every day. In this situation, the invisible hand of the market intervened: several dozen gas carriers at once changed course and headed towards European ports. As a result, prices at the beginning of the second decade of January fell to $ 900 per thousand cubic meters – still a colossal amount when compared with the situation six months ago, but still tolerable against the background of December indicators.

In some cases, the reorientation to Europe turned out to be so profitable that one of the tankers was driven back through the Panama Canal for the second time, for which they had to pay $ 400,000.

All this happened against the background of the passive position of Gazprom, which was in no hurry to sell gas in excess of the agreed contracts. This is partly due to the cold winters in Russia, where temperatures in most of the European territory of the country are in the region or below the multiyear averages for December and January, while in Europe winters are still warmer than normal. Europeans, however, have a hard time even under these conditions, with electricity prices reaching € 450 per megawatt in December.

ото: REUTERS/Christian Charisius

Thanks to “molecules of freedom” – branding in the unforgettable style of the administration of former US President Donald Trump – prices have dropped to $ 200. Despite this, electricity and heat remain expensive for consumers, so businesses are curtailing production, inflation is accelerating (especially in Eastern Europe, where energy is a large share in the cost structure), and in the UK, local energy companies recommend consumers warm their hands on cats.

Be that as it may, but the American gas carriers were in the right place and at the right time, which made it possible to soften the course of the energy crisis. Will American suppliers be able to work in the same mode in the coming months, and does this mean that gas prices in the EU will continue to fall? At the moment, there are doubts about this. First of all, the demand for gas is growing in America itself. A cold snap on the east coast of the United States increased prices by 27% to about $ 166 per thousand cubic meters at the Henry Hub. Of course, this is still many times lower than in Europe, but the cost of transportation is high, and competition from Asian consumers remains. At the same time, the celebration of the Chinese New Year begins very soon, during which energy consumption in the largest economy in Eurasia falls. At the same time, the Chinese government is actively fighting carbon dioxide emissions, which can provoke both a decrease (due to a general drop in demand) and growth (due to a temporary reorientation of generation from coal to gas).

What experts say about the situation on the European gas market

According to Finam analyst Sergey Kaufman, the situation with the priority of American LNG is local in nature and is associated with its increased amount due to the jump in gas prices in Europe.

– Now the situation has returned to normal: prices in Asia are again higher than in Europe, which can reduce the flow of LNG to Europe and restore demand for Russian gas. Also, locally, demand has been reduced due to still abnormally high prices and mild weather in the region.



Right now, LNG from the United States is indeed one of the main culprits for the lack of applications, but this situation will not be sustainable. First, Asia remains a priority for US LNG. Secondly, a number of Gazprom’s contracts have a take-or-pay structure, according to which it is simply unprofitable not to buy gas. Thirdly, so far the volume of American LNG is too small to displace Russian gas from the European market.

President of the Institute of Energy and Finance, Marsel Salikhov, in a conversation with Izvestia, noted that in mid-December, spot prices for TTF exceeded spot prices for gas in Asia. This encouraged suppliers to redirect uncontrolled gas flows to the European market.

– According to tanker shipments, LNG shipments from the United States to Europe in December totaled 3.3 million tons, up from 2.2 million tons in December. In January, delivery of almost 4 million tons is expected, which is the maximum level.

Salikhov admits the likelihood of a further decline in prices on one condition: if there is a warm winter and the flow of LNG continues.



– This, however, is unlikely. Futures markets expect fairly high prices (above $ 800 per thousand cubic meters) to continue throughout 2022. Back in early December, the markets expected that a decline in prices to $ 500-600 per thousand cubic meters would occur by the summer of 2022. However, in December, market expectations have changed quite seriously, and now a significant decrease in prices is expected only in 2023.

The situation around the timing of the commissioning of Nord Stream 2 also remains uncertain, which increases tension in the market and contributes to a higher level of prices, the economist stressed. According to him, the new German government is ready to oppose the commissioning of the gas pipeline to a greater extent. This will not stop the certification of SP-2, but it may slow it down on formal grounds.

Leave a Reply