Europe has failed to secure enough long-term contracts for liquefied natural gas to offset cut-off Russian gas imports, which may prove costly next winter as a rebound in Chinese demand could sharply tighten the market, according to a new analysis this week from Reuters.
Europe imported 121M 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 to get through winter with higher than expected gas storage levels.
But Europe bought much of its LNG last year on the spot market, where prices are often much higher than gas bought under long-term contracts, and analysts warn additional demand from China could push prices even higher, Reuters reports.
Analysts estimate Europe accounted for more than a third of the world’s total spot market trades in 2022, up from 13% in 2021, and this exposure potentially could rise to more than 50% during the 2023-24 winter season.
Part of the problem is that the European Union sees gas as a transition fuel, so its LNG buyers struggle to commit to the timeframes necessary to lock in LNG more cheaply under contract, while Asia has been buying up new long-term contracts starting in 2025 and beyond.
“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 told Reuters.
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U.S. natural gas prices have continued to decline, down another 9% during the past week to nearly $2/MMBtu.