The global natural gas market is tightening this heating season, leading to an increase in liquefied natural gas supply costs in Europe, and this winter may be colder than the previous two warm winters. In recent weeks, Europe has increased its imports of liquefied natural gas, especially from the United States. The benchmark natural gas price at the Henry Hub is significantly lower than the European benchmark - Dutch TTF natural gas futures.

Europe is competing with Asia for liquefied natural gas supply

As the peak demand season in the northern hemisphere approaches, Europe is competing with Asia for liquefied natural gas supply, which has pushed up the price of liquefied natural gas and prevented some price sensitive buyers in South Asia from purchasing liquefied natural gas in the spot market.

But Europe doesn't have many options. As temperatures drop, Europe must increase its procurement efforts to meet the growing demand for natural gas, and geopolitics have brought another layer of uncertainty to recent supply.

With the start of the winter heating season, a significant slowdown in wind speeds in northwestern Europe, delivery disputes between Austria's OMV and Gazprom, and the end of natural gas transportation agreements, the European natural gas market has been tight for weeks. The Ukraine agreement will expire on December 31, 2024. Ukraine has stated that it will not negotiate with Russia regarding the renewal of the agreement.

Due to the combined effect of all these factors, the European natural gas trading benchmark, monthly Dutch TTF natural gas futures, has risen in the past three weeks and reached a two-year high over the weekend.

In the two months since September, the benchmark natural gas prices in Europe have risen by about 40%. The widening premium of European prices relative to the benchmark prices in the United States has prompted more American exporters to ship flexible goods to Europe. The significant premium of European prices over US prices will further stimulate liquefied natural gas exporters to ship more goods to Europe this winter.

The rise in European prices has also led to a shift in liquefied natural gas shipments originally destined for Asia, as prices in Europe are currently at a premium.

Some Asian buyers, especially in India, have reduced their imports due to price increases. But Europe has no choice - this winter it needs liquefied natural gas, and more, because there is uncertainty about the remaining supply of natural gas from Russian pipelines after January 1, 2025, and weather forecasts show that this winter will be a suitable one compared to the two mild winters of 2017. The energy crisis will reach its peak in 2022 and 2023.

Therefore, Europe is increasing its imports of liquefied natural gas and paying more fees for it. Data shows that Europe is expected to import 9.16 million tons of liquefied natural gas in November, the highest import volume since February, far higher than September and October. A large portion of it is liquefied natural gas imported from the United States.

Europe welcomes cold winter this year, market balance is tightening

The US Energy Information Administration (EIA) stated on Monday that the global natural gas supply balance may tighten this winter, leading to a rise in natural gas prices and the possibility of price spikes.

One or more regions in the Northern Hemisphere may experience colder winter temperatures this year, as weather models suggest a possible transition from El Ni ñ o to La Ni ñ a, which is typically associated with cold and dry winter weather in most parts of the Northern Hemisphere.

EIA points out that the European Centre for Medium Range Weather Forecasts predicts that winters in Northwest and Central Europe will be even colder. The past two winters have been unusually warm, resulting in relatively low natural gas consumption in Europe, increased end of season inventories, and a decline in natural gas prices.

As of the end of November, the weather forecast shows that Europe is currently?? The winter of this year is colder than the previous two warm winters. The decrease in temperature and the imminent end of the natural gas transportation agreement through Ukraine will lead to market tightening and force Europe to pay for liquefied natural gas supply costs.

Although there are currently no warnings about natural gas shortages during the winter of 2024/2025, Europe's energy security will come at a higher cost.