Growing uncertainty over LNG supplies halts fall in European gas prices

European energy markets have seen prices gradually decline in recent weeks and months. Since the end of November, prices for natural gas for delivery next summer and winter have fallen by around a third. Since last week, however, uncertainty has once again been rising on the global market, due to tankers being diverted away from the Suez Canal and an outage at the Freeport terminal in the US. The price decline has therefore temporarily stalled in recent days.

A relatively mild winter, very high gas storage levels and stable supplies of gas via pipelines and LNG terminals are the main factors that have driven down natural gas prices on European markets since the end of last November. Prices of other energy commodities, including electricity, have fallen alongside gas prices.

Several factors have nevertheless emerged since the start of the year that are currently preventing prices on wholesale markets from falling further. First are the attacks on ships in the Red Sea, the shortest route between Europe and Asia. LNG tankers travelling from the US to Asia, or from Qatar to Europe, traditionally use the Suez Canal. The higher risk of attacks has led some shippers to divert their tankers around the Cape of Good Hope, off the southern tip of Africa.

Europe's gas supplies are not at risk

QatarEnergy is among the companies to have done so, but LNG exports from the country have not been restricted. Most Qatari LNG is bound for Asian markets, east of the Suez Canal. Last week, however, the company announced that it would divert several tankers bound for Europe. It was also reported that one LNG cargo to Italy had even been cancelled, although Edison provided no details.

At the end of last week, prices were also supported by the announcement of an outage at the US Freeport export terminal. One of the terminal's three liquefaction trains suffered damage to an electric motor as a result of recent freezing weather. Each of the terminal's three trains represents around 5% of total US liquefaction capacity.

The terminal operator estimates the outage will last around a month, although the duration is often uncertain. One example is the complete shutdown of all three terminal trains following a fire in 2022, which was initially expected to last one month but ultimately stretched to around three quarters of a year.

Although neither event poses any risk to the adequacy of Europe's gas supplies, even a partial restriction or delay in deliveries caused by a longer shipping route can support prices. In recent days, prices for natural gas and other commodities have therefore been flat as the market awaits further information.