Europe is facing a test of how much it has learned from half a decade of successive energy shocks — and US gas exporters should pay attention.
Natural gas prices in Europe hit their highest point in three years this week. While the volume of crude oil escaping the Persian Gulf has moderately ticked up recently, liquefied natural gas exports from Qatar — which, prior to the war, accounted for one-fifth of global supply — remain near rock bottom. That’s triggered the recurrence of a familiar pattern: Global gas undersupplied, US LNG rushing in to fill the gap, and Europe and Asia forced to bid against each other for a limited number of cargoes.
Until recently, Asia had been winning, with LNG deliveries there commanding a significant premium over those to Europe. As a result, Europe’s gas storage facilities are at their lowest point for this time of year since 2011. Over the past two weeks, European prices have caught up enough to flip the script and send more US LNG tankers there than to Asia. But the competition is just getting started: To maintain its purchasing edge this winter, EU gas prices will likely need to be 40% higher than current levels — and more than double the prewar forecast — Goldman Sachs analysts wrote this week.
That sounds scary for European households and factories. But in general, the European economy has learned its lesson after the gas crisis triggered by Russia’s 2022 invasion of Ukraine: Renewables adoption and energy efficiency gains have allowed the EU economy to use significantly less gas per unit of GDP than just a few years ago. Warm weather brought on by this year’s strong El Niño should also help.
And while the LNG price boost is a short-term win for US exporters, it points to a deeper warning. Emerging economies watching Europe’s experience are “losing trust” in LNG as a reliable energy source, TotalEnergies CEO Patrick Pouyanné cautioned this week, flagging a major concern for his shareholders whose company is the top US exporter. LNG market turmoil is also bad for the climate: While Europe jumps ahead to renewables, for many Asian countries the most likely alternative will be to fall back on coal.