“Alternative supplies are being developed, but it will take years for Europe to replace Russian gas, so price volatility is likely to remain a feature of the market for some time.” The war will “continue to restrict supply of natural gas (and many other critical commodities) for years to come,” says Michael Rosen, chief investment officer at Angeles Investments. The International Energy Agency estimated that 45% of the European Union’s 2021 gas imports came from Russia. appears to be on good footing considering its trade with Europe, the Russian-Chinese rapprochement and its impact on LNG trade will be interesting to watch in the near future.Russia’s invasion of Ukraine early last year led to major concerns that Europe would see a shortage in supplies of the fuel. LNG trading is increasingly viewed through a geopolitical lens due to its strategic importance to energy security and international relations. The current geopolitical tensions over Ukraine have also accelerated the Chinese-Russian rapprochement in energy, including in the arena of LNG. It remains to be seen how this will play out in the long run as China exerts increasing influence as the world’s largest LNG buyer. Such moves also complicate hedging strategies.
Rejecting the dollar exposes both parties to additional costs due to exchange rate risk and currency mismatch since most of the exporters are transacting and structuring their projects in dollars. dollar currencies in an LNG trade is far from simple. The trade is part of China’s plan to challenge the dominance of the petrodollar system that has been in place since the 1970s. Petroyuan battleĬhina executed its first yuan-settled LNG purchase from French major TotalEnergies in March 2023. contracted approximately 75% of the global LNG capacity in 2022.ĬME Group Petrodollar vs. According to S&P Global Commodity Insights, the U.S. LNG prices play a crucial role in anchoring gas prices and represent a price celling for competing projects overseas. This allows commercials and LNG project developers to structure financing and hedge their long-term LNG agreements using the forward curve. The futures contract is listed on a monthly basis for the next 12 years, allowing visibility of market expectations for future gas prices. The daily volume of Henry Hub futures and options complex averaged 626,839 contracts in April 2022 which is an increase of 49% compared to April 2021. benefits from the maturity of the Henry Hub futures market, which is characterized by its price transparency and high liquidity. Henry Hub Natural Gas futures prices are more competitive compared to prices in Europe and Asia. government has been solely to define the regulatory/policy framework and to conduct energy diplomacy. Unlike in many producer nations, the role of the U.S. LNG trading is typically based on the laws of supply and demand, and the geopolitical dimension manifests itself only where there are political or geographic considerations. LNG industry is competitive, funded by private capital, and driven by entrepreneurship. LNG exports are driven by market forces rather than politics. LNG exports helped Europe through the winter of 2022 and strengthened its role in energy security for its western allies. and European energy policy closer than ever before.
Unexpectedly, the events ended up accelerating the decoupling of Europe’s reliance on Russian gas and strengthened the role of the U.S. LNG exports to Europe, according to the U.S. France, the UK, Spain, and the Netherlands imported 74% of U.S. LNG exports in 2022, accounting for 64% of total exports. Without a doubt, the EU has faced considerable challenges in its pursuit of independence from Russian gas, but the impact of the sudden rupture was lessened due largely to warm winter conditions and the rapid ramp up of LNG imports, mainly from the U.S.Įurope was the primary destination for U.S.
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