A flotilla of U.S. liquefied natural gas carriers heading for Europe has brought relief to European gas buyers, pushing gas prices considerably lower. According to Bloomberg data, cited by Russia’s Sputnik, LNG cargos traveling from the U.S. to Europe rose by a third over the Christmas weekend.
20 tankers with U.S. LNG are traveling to Europe, and another 14 are headed in the same general direction awaiting further orders as desperate Europe became willing to pay a higher premium than buyers in Asia amid a persistent gas crunch that has seen prices break a series of records and forced some countries to reopen retired coal power plants.
According to analysts, the U.S. cargoes will not make a lasting difference due to volume constraints, yet the very news of the cargoes heading to Europe has already had an effect on European gas prices, especially as it coincided with forecasts of milder weather.
Bloomberg reported last week gas in Europe was trading at over $57 per million British thermal units, which was a premium of some $24 per mmBtu to Asian gas prices—more than enough to motivate greater U.S. LNG sales to Europe.
Last Tuesday, European gas prices jumped to an all-time high after gas on the Yamal-Europe pipeline reversed flow eastward and freezing temperatures took hold in many parts of Europe. The benchmark price for Europe at the Dutch Title Transfer Facility (TTF) surged by 11 percent to a record 162.78 euros per megawatt-hour on December 21.
Since then, however, prices have been on a steady decline even though Gazprom has continued to shun booking export capacity on the Yamal-Europe pipeline for the eighth day in a row. The pipeline supplies a tenth of total Russian gas deliveries into Europe, but in the past week, it has flown in reverse to Poland. According to a Gazprom spokesman, the company’s clients had already contracted their 2021 volumes and were not submitting applications for extra volumes.
An additional reason for the mellower gas prices in Europe this week is reduced trading activity around the holidays, according to Bloomberg.
By Irina Slav for Oilprice.com
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Yet the Europeans persist with their short-sighted politicizing of energy by opting to buy the more expensive US LNG rather than sign long-term contracts for the supply of the much cheaper Russian piped gas and delaying the certification of Nord Stream 2 gas pipeline.
A harsh winter could push gas and power prices which are already near record levels higher still in the first half of 2022. This could be due to the fact that European gas storage levels are low, nuclear outages in France, very strong demand for both gas and LNG in the Asia-pacific region and tighter global gas market. The Europeans are expected to pay 295 billion euros in additional energy bills in 2022.
However, US LNG shipments will hardly leave a lasting impact on gas prices in Europe. Moreover, neither Qatari, or American or Australian LNG nor Norway’s gas exports could satisfy the energy demand of the European Union (EU) countries. Only Russia can. However, Russia may not be inclined to ship additional gas supplies to the EU without an early certification of Nord Stream 2.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London