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A Grim situation of the LNG supply in Europe

A Grim situation of the LNG supply in Europe

A Grim situation of the LNG supply in Europe

  • 17-Aug-2022 4:45 PM
  • Journalist: Timothy Greene

Frankfurt, Germany: The high chance of Europe running out of Liquified Natural Gas this winter is further confirmed by the record high value of winter 2022 wholesale contracts. There is still disagreement over whether or not the continent would totally run out of marginal supply, but the traders polled agreed that prices might still increase, and localised supply problems could arise during periods of peak demand. A German-based LNG trader stated, "Even with full inventories, Europe will struggle during this winter if Russia further cuts its supply or if the winter gets colder".

Since the beginning of 2020, Europe has experienced substantial decreases in baseload supply from Russia, the most recent of which was through the Nord Stream dual-pipeline system into Germany, which was the focus of a dispute between Moscow and the West regarding sanctions imposed on the former. Other traders stated that the demand from the Asian region would also impact the supply crunch situation in the European market. Some have questioned how high wholesale prices can rise as prices continue to break previous records and historical pricing data implies significant winter-contract gains may still be possible.

The idea of rationing LNG supply in the European market is a tricky situation because a trader from Austria stated that it is politically a dangerous play to have cold homes. Rationing will also bring various discussions about responsibilities which may lead to multiple unpleasant scenarios. In Europe, historically high prices have already sparked a demand-side response as national economies reduce their reliance on pricey gas. However, it hasn't been able to lower market pricing, and whether there is a supply gap between demand and supply will ultimately depend on whether customers are prepared to cut back on their usage.

According to ChemAnalyst, the LNG prices in Europe will likely rise due to the coming winter. Although various countries have already filled their inventories, different traders stated it would be challenging to face the winter even with full storage. So the demand for LNG throughout winter will keep the costs high.

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