As Europe braces for a cold winter, global natural gas prices could soar even higher

Europe has been struggling to fill gas storage sites to adequate levels in recent months as Asian buyers have been snapping up LNG cargoes.  A colder winter could send Europe’s gas prices soaring to new record highs in the coming months. Russia signaled this week it would start filling European storage sites once Gazprom completes the filling of the Russian storage

As Europe enters the heating season with natural gas inventories at the lowest level in a decade, policymakers, consumers, and industries are left at the mercy of the weather, hoping for a mild winter to avoid further tightening of the already tight European gas market. Following the colder-than-usual 2020/2021 winter, Europe has been struggling to fill gas storage sites to adequate levels in recent months as Asian buyers have been snapping up LNG cargoes. Buyers prefer to ship LNG to Asia where the price of gas per million British thermal units is higher than the equivalent prices in Europe. 

Despite the fact that the global gas price surge originated from woefully low inventories in Europe and led to record Asian LNG spot prices, Asia is winning the bidding war for spot LNG supply, leaving Europe undersupplied. 

In this situation of low gas inventories and an already tight gas market, a colder winter could send Europe’s gas prices soaring to new record highs in coming months, accelerate the rush to coal and oil products, and leave Europe with no gas in storage at the end of the heating season. This would support high gas prices through 2022 as the continent will have to replenish supply before the next winter comes. 

“Europe could end up with almost no gas left in storage after a colder-than-normal winter, but above seasonal norms at the end of a warm one,” BNEF analysts say.  Russia signaled this week it would start filling European storage sites once Gazprom completes the filling of the Russian storage. But Moscow also says that an immediate boost to supply for European customers would come as soon as German authorities approve the controversial Nord Stream 2 pipeline.

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