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European natural gas prices have rocketed more than 30% on Wednesday, as traders panicked over the possibility of reduced LNG supply from Australia, a world leading supplier of the commodity. The European benchmark,TFF, jumped to as high as €42 per megawatt hour in Wednesday intraday trading, 35% higher than the previous day, and its highest point since mid-June.
Commodity analysts have said that the sudden jump was likely due to some traders rushing to close their short positions on the news of tightening supplies. Europe has failed to secure enough long-term LNG contracts to offset cut-off Russian gas imports, with Reuters earlier predicting this may prove costly next winter and could sharply tighten the market.
The European Union views natural gas as a bridge fuel in the transition to renewable energy, and buyers generally struggle to commit to long-term contracts. This means that Europe might be forced to buy more from the spot markets like it did in 2022, which in turn is likely to push prices up:
"Since the green lobby in Europe has managed to persuade politicians wrongly that hydrogen to a large extent can replace natural gas as an energy carrier by 2030, Europe has become far too reliant on spot and short term purchases of LNG," consultant Morten Frisch earlier told Reuters.
Last year, Australia emerged as the world’s leading exporter of LNG, shipping 82.0 million tonnes (Mt) of LNG2 valued at $63 billion, a new world record. That figure eclipsed 81.2 Mt exported by Qatar and 79.1 Mt exported by the United States. But some gas experts have claimed that Australia could soon lose its lead in the gas business due to a host of challenges including reserves not being fully replaced despite important legacy gas fields reaching the end of their lives, growing domestic demand and more regulatory scrutiny.
Australia has 10 operating LNG projects located in Western Australia, Queensland and the Northern Territory with a total capacity of 88.6 million tonnes per annum (Mtpa). The Pluto Train 2 project currently under construction will bring total capacity to 93.6 Mtpa (126 Bcm) when it starts operations in 2026. Australian LNG projects have a good reliability track-record (achieved 93% of nameplate capacity in 2022).
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.