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Editorial comment

Last winter, LNG was Europe’s knight in shining armour; swooping into its terminals from far flung destinations and saving the continent from the threat of mass energy shortages. Europe imported over 66% more LNG in 2022 than it did in 2021, bolstering its storage reserves and ensuring that the lights (and heating) stayed on throughout the dark, cold months. In its latest ‘World LNG Report’, the International Gas Union (IGU) noted that during the most turbulent year in the history of gas markets, LNG “demonstrated its essential value as a flexible, reliable and available energy resource for a secure energy transition.”


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However, if Europe was under any illusion that LNG provided a cosy (although cryogenically chilled) comfort blanket for its energy needs, it was recently given a nasty shock.

Europe’s newfound dependence on LNG imports has left it susceptible to supply disruptions from around the world, even as far afield as Australia. Despite the fact that Australian LNG rarely makes its way directly into European regasification terminals, the recent threat of strike action at three LNG terminals in Western Australia started a chain of events that saw a dramatic surge in European gas prices. The fear is that if production is halted at the LNG terminals operated by Woodside Energy and Chevron, then their regular buyers from Asia may be forced to look for alternative supplies from elsewhere, putting them into direct competition with Europe. Kaushal Ramesh, Head of LNG analytics at Rystad Energy, explains: “A lot of US volume […] which [is] currently being sent to Europe, could be taken to Asia, raising the risk of an inter-regional bidding war.”1

We live in incredibly sensitive times, and the markets are easily spooked. The mere whisper of industrial action can lead to significant price volatility. This is the new reality for Europe as it continues to wean itself off Russian gas and increases its reliance upon LNG – a truly global commodity. And although Europe currently sits on a comfortable level of storage reserves, said to be close to 90% full, “the market remains unstable as this winter could still turn out severe and rapidly deplete storage”, according to Ramesh. Even if winter is mild, the continent will need to continue importing huge quantities of LNG throughout the coming months, as storage alone cannot meet demand.

Interestingly, in a bid to bolster its storage reserves, Europe’s energy industry has also started to ship large volumes of natural gas into war-torn Ukraine. The country has more gas storage capacity than any country in the EU, and has the potential to provide an additional 10 billion m3 worth of storage to foreign customers, according to state-owned Naftogaz Group.2 Brussels-based think tank, Bruegel, recently said that Ukraine could increase Europe’s storage capacity by approximately 10%.

Ukraine’s storage tanks are located deep underground in the west of the country, which is far from the front lines. And although traders were initially cautious about using the facilities, there are signs that this is beginning to change. Naftogaz said that the number of non-Ukrainian companies injecting gas into the country had hit 19 this year, up from four in 2021. It seems that Ukraine is offering an unexpected option to help stabilise the market and ensure security of supply throughout winter.

  1. TANI, S., ‘Gas price spike underscores Europe’s vulnerability to global energy shocks’, Financial Times, (10 August 2023).
  2. TANI, S., SHEPPARD, D., and HANCOCK, A., ‘EU increases gas storage in Ukraine to ease winter shortage’, Financial Times, (8 August 2023).

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