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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Europe’s Energy Crisis Is Driving Up Natural Gas Prices Worldwide

Natural gas prices all over the world are surging amid a perfect storm of tight regional gas markets and soaring power prices in Europe. The natural gas rally isn’t over yet—and it has further room to hit fresh record highs, especially if the coming winter turns out to be colder than typical in the northern hemisphere. The natural gas crunch and the sky-is-the-limit rally in electricity prices are most evident in Europe. But the increased interdependence among regional gas markets in the U.S., Asia, and Europe in recent years now means that natural gas price spikes in one region cannot be ignored by the markets in the other regions.  

As the northern hemisphere prepares for the coming winter, analysts say that weather will be the most important factor for natural gas prices and markets in the next few months. And if it’s colder than usual, Europe will not be the only one to feel a hot rally in energy prices.

The gas supply crunch in Europe is “going to put the focus on this commodity that’s been overlooked for the last several years,” John Kilduff, partner with Again Capital, told CNBC this week.

A Perfect Storm In Europe Even Before Winter

Europe’s tight gas market, low wind speeds, abnormally low gas inventories, and record carbon prices have combined in recent weeks to send benchmark gas prices on the continent and power prices in the largest economies to record highs.

Almost daily, gas and power prices in Europe surge to fresh records, putting pressure on governments as consumers protest against soaring power bills ahead of the winter heating season.

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With just two weeks to go until the end of the injection season, natural gas inventories in Europe are at their lowest level for September in recent memory. This makes the market anxious about a dramatic supply crunch if this winter is anything like last winter, when temperatures were below norms for extended periods of time and a cold snap in the spring depleted stockpiles. Those inventories couldn’t be adequately replenished as demand in Asia has also been strong, while supply in Europe has dropped due to lower deliveries from Russia.  

During the summer, even with the strong rebound in European natural gas demand and surging prices, Russian giant Gazprom did not book additional entry capacity to Europe via Ukraine.

Analysts say that this could have been an opportunistic move from the Russian giant to drive up Europe’s gas prices further and take advantage of the high prices. Other analysts think that Gazprom’s effective reduction in supplies would force Europe to recognize that gas customers on the continent need the controversial Nord Stream 2 pipeline to Germany, which bypasses Ukraine.  

Kremlin Says Nord Stream 2 Could Come To The Rescue

Now that Russia has completed the construction of Nord Stream 2 and awaits a German regulatory nod to start gas flows, the Kremlin says that a quick approval and launch of the pipeline would help tame Europe’s soaring prices.

“Obviously, the commissioning of Nord Stream 2 as soon as possible will substantially balance natural gas price parameters in Europe, including on the spot market,” Kremlin spokesman Dmitry Peskov said on Wednesday.

Regardless of whether Gazprom’s lower summer gas deliveries were a power play or the result of unexpected outages, the fact is that they contributed to the current gas shortage in Europe.

Europe’s Gas Crunch Drives Up U.S. Prices and LNG Exports

In today’s interconnected regional gas markets, record-high prices in Europe drive U.S. benchmark prices up, too.

“The U.S. is supposed to be an island, but in the last three or four years, there’s an increasing link between the U.S. and global market,” Francisco Blanch, head of commodities and derivatives strategy at Bank of America, told CNBC.

“We’ve gone from 50% correlation to 95% correlation. The U.S. market is being dragged around by this,” said Blanch.

In the United States, the Henry Hub price hit on Wednesday its highest in seven and a half years, “seemingly piggybacking off European prices,” Bespoke Weather Services said in a note carried by Natural Gas Intelligence.

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High demand for gas in Europe and Asia and the high Asian spot LNG prices even in the off-peak season are driving record exports of American LNG. High LNG exports, in turn, tighten domestic U.S. gas supply amid relatively flattish production in recent months and the still shut-in 39 percent of the U.S. Gulf of Mexico gas production as of September 15, more than two weeks after Hurricane Ida forced platform evacuations in the area.

U.S. natural gas prices may cool with pleasantly warm early fall weather, analysts say.

Yet, the natural gas/LNG supply squeeze globally is setting the stage for record winter prices, Lindsay Schneider at RBN Energy wrote last week.

“The incredible bull run for global gas prices has been underpinned by high demand for LNG and the cascading effect of a supply squeeze in Europe, brought on by the triple threat of low domestic production, decreased imports from Russia, and a scarcity of incremental LNG cargoes,” Schneider says.

“Not only is this driving record-high gas prices and increased volatility now, but the low inventory means sustained high prices for the heating season ahead,” the energy analyst noted.  

By Tsvetana Paraskova for Oilprice.com

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  • Steven Conn on September 16 2021 said:
    There are some additional points that ought to be made when discussing this current trend.

    1. Russia is delivering more gas - over 20% more - this year than in 2020. It is currently en route to approach the 2018 record of 202 billion cubic meters.

    2. LNG deliveries from US and Qatar have gone to East Asia and to Brazil, where a drought has hit electricity supplies. These LNG supplies are lower than last year, NOT Gazprom's supplies, which are higher. EU spot market is affected much more by LNG shipments than by Gazprom's long-term contracts.

    3. EU Commission has worked to create obstacles to Gazprom's gas deliveries. This is seen in the reduction of the OPAL pipeline and in the obstructions created for 1/2 of Nord Stream II pipeline. They have also enabled Ukraine to charge very high gas transit fees, making this route unattractive beyond contracted amounts.

    4. EU set up their spot market for gas to create "buyers' market". Well, today prices for Gazprom's long-term contracts are drastically lower and more stable than the spot prices on Dutch or British markets where interested traders and broker speculate on and react to world events.
  • Mamdouh Salameh on September 17 2021 said:
    The controversial Nord Stream 2 gas pipeline won the war against US sanctions and Russia will emerge as the winner of the soaring natural gas and electricity prices in the European Union (EU).

    No matter how one looks at it, Russia will be the main beneficiary of the natural gas rally worldwide particularly in the EU.

    Europe’s energy crisis makes it overwhelmingly clear how dependent the EU is on Russia for its gas supplies and how important Nord Stream 2 for the EU’s energy security and as a counterbalance to the soaring gas prices with its ability to bring 50 billion cubic metres of additional natural gas supplies to the EU.

    That is why it is of paramount importance that Germany’s regulator should be prevailed upon to issue an immediate temporary operational licence to Nord Stream 2 before the onset of Winter.

    Like oil, a gas price rally in the EU affects other markets whether in the United States or the Asia-Pacific region.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Hugh Williams on September 18 2021 said:
    Mr. Conn,

    Your item 4 is very much on the mark. Forcing the spot market on industries with spend billions to set up a supply of one product for a customer is hostile to the producer. An alert government would never allow it.
  • George Doolittle on September 18 2021 said:
    I don't really understand how Norway, Great Britain, the Netherlands and Egypt somehow have zero natural gas to export to Europe at the moment...with i think West Africa being another major source.

    Plus Germany has coal plus Germany, France and Great Britain have nuclear Power.

    I can understand why unless you are Canada it is impossible to export natural gas into the US market going on forever now but these other price moves in far more than just natural gas seem absurdly speculative to me at the moment and look to be heading the way of lumber, iron ore, corn... hilariously silver, gold, platinum, palladium etc. Very much feels like a stupendous deflation is now engulfing China.

    Anyhow I'm still a strong believer in Fed Chair Powell as doing a *GREAT JOB* indeed far better than any other Central Banker in the World and especially now with the crushing military defeat of the Western Powers in Afghanistan with now a non response to any and all natural disasters by the entire Federal Government of the United States other than moar debt to pay for now Super MOAR Woar.
  • Kay Uwe Boehm on September 21 2021 said:
    Has England stopped fracking again and no LNG terminal like Poland, Holland, France etc. with much more capacity than used if Russians turn the gas tap? There is enough gas for over a decade increase in world also ?in europe
    ?The main supplier of LNG in the world is Qatar and Iran, which is booming worldwide, and CNG in Asia & Latin America as well as in Southern Europe and Holland
  • Mike Berger on September 22 2021 said:
    Strange to say it's the European crisis driving up prices when Asia is out bidding European buyers...
  • Kay Uwe Boehm on September 23 2021 said:
    German storage reserves are rekative low not filled up much in summer but enough and still could be filled up over 90% means no supply problem but expensive if done late in still autumn not very cold winter for FRG home heating gas network 50% and combinations with electricity or gas turbines like 60% efficient Siemens GuD gas and steam combi.
    If gas price to low bad for investments also in others like nuclear power or own fracking gas and FRG can and does buy also orher neighbour country LNG terminals like in Rotterdam or poland etc. all connected from norway up to aserbaidschan and mediterian sea gas mass already over LNG from israel etc. huggest still Quatar LNG local also iran etc. etc. Recommended also using of (700+ bar) CNG over 2.4m pebble tanks local distribution added to fuel stations or home 5 frame connected 40' ISO container for train, ship & truck not cooled up ca, 1000+ bar LNG fillable

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