Zeitenwende’ – a turning point – for EU LNG markets

European LNG importers have been securing volumes via long-term contracts from US, Qatar, Algeria & others for many years.

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Spain and France are dominant EU buyers, besides UK before Brexit. In a decade of predominantly low and stable gas prices actual LNG imports turned out lower than maximum contract entitlements. Lower nominations, LNG cargo reloads, cargo redirections and were indicators of a saturated EU LNG market.

In 2022, the European LNG market turns direction. The sudden increase of LNG intake and its projected increase over 2023-2024 means that long-term contract volumes are not sufficient to cover rising LNG import demand.

European companies attempt to secure additional contracted volumes on ad-hoc terms. No good timing to secure volumes at a good price. EU importers revert to spot LNG cargos and thereby increase Europe’s exposure to global LNG price developments.

Long-term contracts can help shielding Europe from global price volatility. A majority of EU LNG long-term contracts keep their pricing formula as highly confidential.

Among the 40% of contracts where pricing is known, we estimate roughly half of them carrying oil-indexation elements. The other half is majority US Henry Hub based pricing, whilst a minority of contracts follows a European hub or LNG price index. ICIS regularly tracks long-term LNG contracts and disposes over a database with around 1000 worldwide contracts.

Source: Andreas Schroeder