Europe’s exposure to spot gas markets set to grow drastically

The era of structural uncertainty: Europe’s exposure to spot markets is set to increase from 20% in 2021
to close to 80% by 2030 without new long-term contracts.

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Long-terms were at the backbone of the European gas system: in 2021, they accounted for over 80% of gas demand and enabled Europe to arbitrage between flexible piped and LNG supplies.

Russia’s weaponisation of gas and the unilateral cut of supply contracts abruptly ended the era of long-term contracts: spot procurements are expected to account for ~40% of the EU+UK gas supply already this year.

Europe’s exposure to spot markets is set to increase close to 80% by 2030 as Russian gas is phased-out, domestic production declines and long-term contracts (primarily with Norway) expire.

Such exposure to the spot market will inherently drive up price volatility and will raise questions related to gas supply security and portfolio risk management.

The current outlook also raises questions on the future role of long-term contracts, especially with reliable suppliers.

Source: Greg Molnar (LinkedIn)