Europe's warning for US gas exporters
Europe is facing a test of how much it has learned from half a decade of successive energy shocks — and US gas exporters should pay attention.
Europe is currently grappling with the implications of a prolonged energy shock, with the United States' natural gas exporters needing to take notice. This week, European natural gas prices reached their highest level in three years, despite a modest increase in crude oil from the Persian Gulf. However, liquefied natural gas (LNG) exports from Qatar, which once comprised one-fifth of global supply, remain at their lowest levels since the conflict began.
This has led to a repeat of a recurring scenario: a global gas deficit, US LNG filling the void, and Europe and Asia bidding against each other for limited cargoes. Historically, Asia has enjoyed a significant advantage, with their LNG deliveries commanding a premium over those heading to Europe. Consequently, Europe's gas storage facilities are at their lowest point for this time of year since 2011.
Over the past two weeks, European prices have risen to the point where more US LNG tankers are bound for Asia rather than Europe. Nonetheless, the competition is far from over. To secure a favorable position for the winter, EU gas prices may need to surge by 40% compared to present levels, more than doubling the pre-war forecast, according to Goldman Sachs analysts.
While this may pose challenges for European households and industries, it is a testament to the EU's progress in reducing gas consumption per unit of GDP since Russia's 2022 invasion of Ukraine. Moreover, favorable weather conditions driven by a strong El Niño could further alleviate the situation. However, the surge in LNG prices presents a broader warning.
Emerging economies observing Europe's predicament are "losing confidence" in LNG as a dependable energy source, according to TotalEnergies CEO Patrick Pouyanné. This is a significant concern for his shareholders, given that TotalEnergies is the leading US exporter. Furthermore, LNG market instability is detrimental to the environment, as many Asian countries may revert to coal as an alternative to renewable energy.
Written by urgent.news from Semafor's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
