Conflict in Eastern Europe reshapes natural gas flows

Falling Russian natural gas supplies caused an energy crisis in the rest of Europe. Gas prices reached the highest levels after the leaks were found on Nord Stream 1 in mid-September (USD 99.74 per Metric Million British Thermal Unit (MMBtu), starkly exposing the dependence of EU countries on Russia.

 Natural gas price in Europe (TTF) and the United States (Henry-Hub) - USD/MMBtu.

Source: NYMEX, StoneX. Design: StoneX.

Russia, the largest supplier of natural gas to Europe, restricted gas supplies after the European Union (EU) announced economic sanctions against Russia. Gas flow through Nord Stream 1 ceased from September; the pipeline transmitted about 1.75 billion kWh/day gas equivalent in the same period a year ago. This same was true in other gas pipelines linking Russia to the rest of Europe, such as Yamal – via Poland – and the Ukraine Gas Transit.

Gas made up close to a quarter of European Union countries’ energy consumption in 2020, with Russia providing about 41%. European economies turned to other gas markets to build inventories for the winter, with Russian supply constrained. For example, we saw an escalation of Liquid Natural Gas (LNG) imports. There has been an important change in global natural gas flows, with

Countries such as the US have improved their operating margins by taking advantage of price differentials between their references (especially Henry Hub prices) and the virtual trading point for natural gas in the Netherlands (the Title Transfer Facility, or TTF.)

European reserves of LNG have remained above the average, with high LNG import levels and a drop in natural gas consumption. Despite this favorable scenario, Europe is still vulnerable. The complexity of LNG import operations, and the limitations of regasification terminals, present supply obstacles as consumption rises. Pricing levels could continue to rise.

Analysis by Bruno Santos and Isabela Garcia

Contacts: bruno.santos@stonex.com, isabela.garcia@stonex.com