Oil & Gas

As Europe's benchmark natural gas prices soar to a one-year high, the gap between European and U.S. prices has reached significant levels, far surpassing 2024 averages. This widening premium is expected to incentivize U.S. liquefied natural gas (LNG) exporters to increase shipments to Europe, where demand is rising. Currently, the price of U.S. benchmark gas, Henry Hub, is about 80% lower than the Dutch TTF Natural Gas Futures, the European benchmark, highlighting the stark contrast in pricing between the two regions. This price disparity presents a compelling opportunity for American exporters to capitalize on higher European prices.

The surge in European prices comes amidst a backdrop of rising tensions in the energy market. Last week, European benchmark prices surged to their highest level since November 2023, driven by several factors. Austria’s OMV raised concerns about the potential halt of Russian pipeline gas supplies, exacerbating fears of energy shortages. Meanwhile, colder weather in Europe has driven up heating and electricity demand, further tightening supply. Although Russia's Gazprom did cut off gas supplies to OMV, Russian gas flows to Austria have not yet completely ceased, leaving the market in a state of uncertainty.

The European gas market has been especially volatile in recent weeks, spurred by the start of the winter heating season, a lull in wind speeds across northwestern Europe, and the ongoing dispute between OMV and Gazprom. Adding to the uncertainty is the approaching expiration of the gas transit deal through Ukraine on December 31, 2024. Ukraine has made it clear that it will not pursue talks to renew the agreement with Russia, which could further strain gas supplies to Europe. As these developments unfold, European gas prices are likely to remain elevated, further driving demand for LNG.

In response to the price hike, the U.S. LNG export market is seeing increased activity. The volume of natural gas flowing to the seven U.S. LNG export plants was on track to reach a 10-month high earlier this week. As European prices climb, LNG cargoes originally intended for Asia are being diverted to Europe, where higher premiums are now being offered. In the past week alone, at least 11 LNG cargoes were redirected from Asia or Egypt to European markets, according to vessel-tracking data. This trend highlights the shifting dynamics in global gas trade, with Europe currently attracting a larger share of LNG supplies due to its higher prices.