Europe faces scramble for natural gas amid supply shortages

Europe is preparing for a fierce competition over natural gas supplies this year, which will continue to drive up energy costs for consumers and industries.

The continent is struggling to meet its storage targets for the upcoming winter, a situation worsened by the halt in Russian pipeline deliveries through Ukraine since the end of their transport agreement. This has set the stage for a final scramble for liquefied natural gas (LNG) before new global LNG production capacity starts to ease the supply tightness next year, Caliber.Az reports citing foreign media.

While Europe has enough reserves to get through this winter, cold weather has begun to deplete inventories. To cover its demand, Europe will need to import an additional 10 million tons of LNG, about 10 per cent more than in 2024, with competition expected to intensify as the year progresses. The increased demand for LNG will shift supplies away from Asia, where countries like India, Bangladesh, and Egypt risk being priced out of the market due to Europe's willingness to pay higher premiums.

Gas futures in Europe are currently about 45 per cent higher than at this time last year, and prices continue to remain three times higher than pre-crisis levels. This competition for LNG could lead to a bidding war that makes it even harder for developing nations to secure supplies, potentially driving up costs across the globe.

The situation is particularly challenging for Germany, which was heavily reliant on Russian gas before the war in Ukraine. Energy security is a key issue ahead of Germany's February elections, with political parties divided on how to address rising energy costs and secure future supplies. Meanwhile, countries like Brazil and Argentina are also facing difficulties in meeting their LNG needs.

As LNG exporters, particularly the US, are expected to ramp up production, the overall market balance will depend on how quickly new facilities can begin operating. The US is forecast to increase LNG exports by 15 per cent in 2025, though the pace remains uncertain due to slower production ramp-ups.

By Vafa Guliyeva