US Natural Gas price closed the week at $7.6 per million British thermal units (mmBtu). The Japan-Korea LNG Marker closed the week at $23.5 mmBtu.
LNG price has been fluctuating in a narrow-range between $23-$25 mmBtu since early March. On the other hand, Natural Gas price has also been moving in wide-range between $4.5 and $8.7 mmBtu since early March.
Obviously Natural Gas price has been in steep price fluctuation unlike LNG price as a result of disruptions from a key transit route through Ukraine and a move by Moscow to retaliate against sanctions that escalated the risk of further supply shortages.
The expected drop in Russian Natural Gas flows and the record LNG exports in response to potential sanctions on Russian energy didn’t push LNG price much higher as warmer weather might curb LNG demand and ease supply tightness.
Seasonal warmer weather might ease LNG demand and probably offset supply tightness. However, the decline in Russian Natural Gas flows through Ukraine might not have an immediate impact on the LNG market because it is not yet a clear reflection on how the impact on the overall gas availability in Europe might work in the near-term. Worries of escalating conflict might be counter-offset by ample LNG supplies that don’t have direct access to some south-eastern European consumers.
Further reduction in Russian Natural Gas flows would cause a severe concern for Europe to prepare for next Winter by filling storage facilities despite a period of low consumer demand season. Theoretically, it is not clear yet how this will impact the LNG market, which is supposed to be conceptually detached from Natural Gas market fundamentals. This might hinder Europe’s race to build a buffer of stored gas to help counterbalancing potential supply disruptions and reduce Russia’s leverage.
Despite some earlier estimates of a decline in US gas production, the United States seeks to boost LNG exports to Europe. According to EIA, the US is forecasted to become the world’s top LNG exporter in 2022 with an average export of 12.2 billion cubic feet per day (Bcf/d) as Europe tries to lower its reliance on Russian Natural Gas and simultaneously displaced Asia as the top destination for the US LNG sending more than 60% of its total LNG exports since the beginning of 2022 even before the Ukrainian crisis. According to Reuters, the US has the capacity to export 9.8 Bcf/d, while Europe’s largest economies import Russian Natural Gas at a rate of 18.3 Bcf/d.
The ultimate question remains if it is wise for Europe to trade its dependency on Russian Natural Gas for unsustainable dependency on US LNG?
Energy Adviser (former OPEC and Saudi Aramco)