European Gas Price Spike Highlights Painful Exposure To Global Markets

Yves here. This article discusses how a possible gas platform worker strike could reduce LNG supplies for a meaningful period of time, with Europe particularly exposed. It quotes a German utility chief recommending more austerity. Cue further de-industrialization.

By Irina Slav, a writer for with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice

  • EU natural benchmark prices spiked earlier this year as s result of a potential strike in LNG exporter Australia.
  • Currently, European gas stocks are at a record high for this time of the year.
  • Its growing dependence on LNG imports have made the EU vulnerable to supply disruptions and price shocks.

Earlier this month, the price of natural gas in Europe spiked by as much as 40% on the news that gas platform workers in Australia may launch industrial action.

The strike could affect a tenth of global LNG, media reported last week, which would send prices higher. Indeed, the very threat of a strike sent prices higher, and once again highlighted Europe’s difficult energy security position.

Last year, the EU celebrated the success of its efforts to reduce its dependence on pipeline Russian gas. Indeed, that dependence was greatly reduced, not without the help of Gazprom itself, which significantly reduced the flow of gas to Europe, prompting buyers there to look for alternatives.

The celebrations did not take very long to turn into complaints. Accustomed to cheap pipeline gas, European buyers were finding out that the LNG spot market had very different rules, which ultimately resulted in higher—much higher—prices when a new buyer as big as the EU appeared on the stage.

By the end of the year, politicians in Europe were complaining about having to pay through the nose for natural gas on that spot market, and some were already closing long-term deals with Qatar and the United States. Even Germany, a staunch opponent of continued reliance on gas, gave up and signed long-term deals and decided to build a permanent LNG import terminal.

What this did was cement the continent’s now almost complete dependence on LNG. Bar some pipeline imports from Norway and Azerbaijan, most of the European Union’s gas in the years to come will be sourced from the international LNG market. And this means higher prices for longer. And even higher prices and the constant threat of a price shock in case of supply disruption, as evidenced by the Australian strikes news.

“The potential for strike action at LNG export plants in Australia once again highlights the fact that we are now clearly in a globalised gas market,” ICIS analyst Tom Marzec-Manser told the Financial Times.

“Europe has understandably backfilled Russian pipeline supply with versatile LNG. But that versatility leads to increased price volatility.”

Currently, European gas stocks are at a record high for this time of the year. In fact, a week ago – days before the news broke that Australian LNG workers are considering a strike – Reuters’ John Kemp reported that this record-high level of gas stocks was keeping a lid on prices. All it took for the \\cover to blow off was the news of a potential strike in one of the world’s biggest LNG producers.

There are already warnings that the energy crisis in Europe is not over. Indeed, these warnings began as early as last year amid the celebrations of switching from pipeline to liquefied gas and how independent that made Europe.

At the time, few were in the mood to listen to warnings that the show was only beginning, not ending. Now, things are changing. Winter is once again on the way, asmj far as it may seem in August. This means there’s a spike in demand for LNG on the horizon. And a spike in demand means a spike in prices, inevitably.

“The crisis is not over yet,” the chief executive of E.ON, one of Germany’s biggest utilities, said earlier this month. “We must continue to work on the issue of austerity. This is the best way to ensure affordability for customers and also to achieve competitiveness of our society and our economy.”

If the CEO of E.ON is talking about austerity—not exactly a popular idea among regular electricity consumers—then the situation must be serious. It suggests there is no great chance of abundant LNG supply and weak competition from Asia that would make the commodity cheaper. That leaves limiting demand as the only choice.

Indeed, austerity is already in place. The exorbitant prices last year made it a natural choice to curb consumption. Indeed, Reuters reported last month that since last year, Europe’s gas consumption has fallen by between 10% and 15% compared to the previous decade. The decline is particularly marked among industrial consumers.

Consumption remained lower even as gas prices calmed down. That’s no wonder since even calmer prices have been 35% higher this year than the average for 2018 to 2021. These higher prices have hit especially hard industries that make the backbone of the EU’s manufacturing sector, including steel and cement making, fertilizers, and petrochemicals.

Last year, LNG made up 34% of the European Union’s gas imports in 2022, the FT reports. This year, this is expected to rise to 40%. That would be virtually the same market share Russian pipeline gas had in the European Union prior to the February 2022 invasion of Ukraine

That means that the EU, for all its self-congratulations on achieving energy independence, has simply replaced one form of dependency for another. This new form goes hand in hand with austerity and loss of competitiveness for some of the most important industries on the continent.

All this suggests some unpleasant facts about the very source of that competitiveness and the EU’s economic and social wealth—the era of abundance that Emmanuel Macron bid farewell to last year.

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  1. Ignacio

    To complement this article here is a link from Bruegel on recent trends in demand of NG in Europe:

    I think It is important to realise that there is high volatility in demand, specially in the power sector (depending on volatility in other power sources) and also, as noted in the article in the household sector, depending on climate. Having this in consideration take a look on Bruegel charts and you will see that industrial demand (the more stable of the three end uses) has been reduced the most precisely during peaks of Power & Houselold demand. It is possible to predict a new pattern in which industrial output is reduced when It is too cold (households) and/or when renewables produce less (calmer wind seasons, less FV in winter, water reservoirs too low…).
    I believe that Finland has shifted from NG to wood to achieve such remarkable reduction in NG demand.

    1. Polar Socialist

      Nope, in Finland NG was mostly replaced with coal, LNG and propane. Also last winter was very mild and the spring came 2-4 weeks early this year. This August has been 3 degrees (Celcius) warmer than the 30 year average. So demand for NG has been lower than usual.

      The ironic part is that the Finnish gas distribution company, Gasum, has a deal with Gazprom that states the minimum amount of annual purchases, so when Finland closed the gas pipeline form Russia, Gazprom sued Gasum and won. So Gasum is still paying hundreds of thousands for gas it’s refusing to receive.

    2. Piquet

      “…you will see that industrial demand…has been reduced the most precisely during peaks of Power & Houselold demand. It is possible to predict a new pattern in which industrial output is reduced when It is too cold (households) and/or when renewables produce less (calmer wind seasons, less FV in winter, water reservoirs too low…).”

      So, “we will shut down industry” (which pays all of our bills) in order to keep from freezing to death. Good luck for survival in the long run when your economy implodes (already happening in Germany).

      “I believe that Finland has shifted from NG to wood to achieve such remarkable reduction in NG demand.”…And soon they will shift from electricity to candles in order to provide lighting at night. I believe that wood is/will be a scarce commodity in Scandinavia soon. Germany already has experienced this.

  2. The Rev Kev

    I took a look at the reasons why the threatened strike and it turns out to be about wages and conditions so nothing out of the ordinary. But the timing is bad as ‘Asia’s LNG demand starts to tick up, as it usually does ahead of peak seasonal demand in the northern winter’ and most of that LNG is headed to Japan and South Korea-

    But the real lesson here is that you should always be careful what you wish for – as you just might get it. For years now the policy of the EU has been to force their member States to ditch long-term contracts with the Russians and instead depend on the spot price market because of course that has to be cheaper. They were leaning on the Russians too to go along with this and were bringing in laws to try to make this happen.

    Well now it has and the EU has freaked out over the astronomical prices that they have to pay which has sent them scurrying to places like with Qatar and the United States to secure long term contracts instead. Of course it will still be more expensive than what they use to pay the Russians but this was what the EU leadership wanted – or thought that they did.

    1. Piquet

      I think it is more fundamental stupidity than that. Who in their right mind would ever think that LNG would be price-competitive with pipeline gas? LNG has always been at least 6X the price of pipeline gas (in general terms). This week, LNG Japan/Korea index = $11.15/MMBTU. Henry Hub (U.S. index) = $2.60/MMBTU. And the winter is not even close!

      This price relationship has been known for decades, and it will not get better in the future. “Leaders” in the EU should be held accountable for their stupid, not ignorant, decisions.

    1. Piquet

      For now, China can divert purchases to EU (at great profit), because their economy is suffering. Those purchases are on long-term contracts, and if China economy improves (?), forget EU getting LNG. The fleet of LNG tankers is limited.

  3. Skip Intr0

    I’ll just pop in to note the catastrophic consequences for the climate from the switch to a much more energy-intensive form of NG, with much longer processing chains and concomitantly larger leaks into the atmosphere. I will not mention the added vulnerability of LNG port infrastructure, which is much more fragile than something like the Nordstreams. “Nice little LNG terminal you got supporting your whole economy, it would be a shame if something were to happen to it.”

    1. Piquet


      Also bear in mind that the LNG coming from U.S. East Coast (Cove Point) has higher levels of radioactivity (radon gas) than typical Natural Gas. Probably more of a problem for the terminal workers than the end-users.

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