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Europe has failed to secure enough long-term contracts for LNG to offset the cutoff of Russian gas imports, which could prove costly next winter as a rebound in Chinese demand could narrow the market sharply, according to The Guardian. New analysis this week from Reuters.
Europe imported 121 million metric tons of LNG last year ahead of the 2022-23 winter season to replace Russian gas — 60% more than the previous year — to help the continent get through the winter with higher-than-expected gas storage levels.
But Europe bought a lot of LNG last year on the spot market, where prices are often much higher than gas bought under long-term contracts, and analysts warn that additional demand from China could push prices higher. Reuters reports.
Analysts estimate that Europe accounted for more than a third of the world’s total spot market trading in 2022, up from 13% in 2021, and that exposure is likely to rise to more than 50% during the 2023-24 winter season.
Part of the problem is that the EU sees gas as a transition fuel, so its LNG buyers are struggling to commit to the timeframes needed to secure cheaper LNG under contract, while Asia buys new long-term contracts starting in 2025 and beyond.
“Since Europe’s Green Lobby wrongly convinced politicians that hydrogen could largely replace natural gas as an energy carrier by 2030, Europe has become increasingly dependent on spot and short-term purchases of LNG,” said Chancellor Morten Frisch. . Reuters.
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US natural gas prices have continued to fall, dropping another 9% over the past week to nearly $2/mmbtu.