Commodities: Europe’s Energy Savior, LNG, Is a Vulnerability
In its moment of most need, back in 2022, the liquified natural gas market saved Europe. Now, that same LNG market is the continent’s new vulnerability. The good news is that the weakness should be short-lived; the bad news is that it won’t go away before the next winter.
The beauty of LNG is that the gas has been super-cooled and processed for loading onto tankers and shipping around the world, very much like oil.
Thus Europe can source the commodity from anywhere: from the US to Qatar, from Australia to Nigeria. The drawback is that everyone else in the world can do the same, procuring it from anywhere and increasing competition.
Rivalry to buy LNG is visible in today’s market, with European benchmark prices recently climbing to a near six-month high above €37 ($40) per megawatt-hour. Although higher than at any point this year, European gas prices are a fraction of the more than €300 reached in August 2022. Prices averaged €20 between 2010 and 2020.
Granted, other factors have also contributed to higher prices: notably, an outage in a Norwegian gas pipeline, strong financial flows into gas financial contracts and fears about losing the last remaining shipments of Russian gas into Europe. But in the background, the battle for LNG cargoes is playing a role.
Before Russian President Vladimir Putin ordered the invasion of Ukraine in 2022, Europe used to depend on Russian gas shipped via pipeline for more than 40% of its imports. LNG accounted for about 20%. But after Moscow largely cut the flow, the continent’s import reliance flipped upside down. By last year, LNG accounted for about 42% of Europe’s gas imports, while Russian pipeline gas fell to just 8%.
