LNG Is A Sellers Market For Now | OilPrice.com

Europe has been driving global LNG trade since the start of the year, buying every cargo it can to secure energy supply during the coldest months of the year. Once spring comes, however, it will need to begin to refill its fast-emptying storage to prepare for next winter—and its fondness for overregulation may turn suicidal.

Global LNG imports were set to hit a 12-month high for January, reaching 38.12 million tons, according to data from Kpler. A lot of this went to Europe, which once again outbid Asian nations for the superchilled fuel that the EU said it would only need for another few years. It doesn’t look that way right now. Right now, it looks like Europe’s leadership needs to sit down and have a good deep thought about securing long-term supply.

Just how critical the situation has become, we can see from reports such as this one from Reuters, which said earlier this week that Europe was now diverting LNG cargos from Australia and Oman. While Omani LNG makes cost-effective sense for Europe, Australian LNG is, as a rule, too expensive given the distance between the two continents. Of course, there was also the matter of record Russian LNG imports, even as European politicians repeatedly called for a ban on these imports.

So, it is as clear as can be that Europe will need liquefied natural gas—for lack of sufficient pipeline supply—for quite a long time. It would be, therefore, wise in this context to come up with ways to, once again, ensure this supply will be available. Yet this is not the approach that collective European authorities have taken. These authorities have instead opted for mandating the purchase of certain minimum volumes—shooting themselves in the foot yet again.

This is exactly how Reuters authors put it in a recent article, where they discussed the EU’s collective gas buying system that is based on these mandates. On the face of it, the system makes all the sense in the world. It aims to ensure that every country that has a storage facility has filled it up to 90% by November, reducing the risk of a shortage in the winter months that come with peak demand.

It is below the face that the problems hide, however. Mandating certain volumes that have to be purchased by a set date turns the global LNG market into a sellers’ market, as noted by Reuters, and this is not a positive for a buyers’ club that has to count its pennies, because Europe has come to a point where it needs to count its pennies.

There is the problem of pricing out poorer nations as well. It happened in 2022, it happened in 2023, and it happened last year. Essentially, it has become a trend since the moment that Europe gave up on Russian pipeline gas—and celebrated the fact. Once refill season hits in Europe, Asian nations with slim energy import budgets start looking for more coal to import as LNG becomes way too expensive for them. In fact, it also tends to become too expensive even for wealthy Asian importers such as China and Japan.

So, by regulating the purchase of certain volumes of LNG by individual members, the European Union is harming itself and the climate it so wants to protect by motivating poorer countries to switch from gas to coal in a brilliant example of unintended consequences. It is also giving perhaps too much pricing power to LNG sellers, which they would undoubtedly take advantage of to the fullest. Last but not least, this approach to securing gas supply is losing importers money in other ways as well—while risking the security of supply.

Reuters explained the paradox in its analysis of Europe’s gas market by noting how overheated trade in LNG ahead of Europe’s refill season—amid emptier-than-usual storage—had pushed summer 2025 futures prices higher than the prices for 2026. The publication then went on to note that few traders would feel motivated to stock up on gas now when they could sell while the prices are higher. Germany made matters worse by suggesting that the government subsidize the purchase of the refill quota volumes, which is literally money in the bank for traders.

Meanwhile, those obliged to store gas for next winter will be losing money while they store it—instead of selling it at the elevated prices. Sadly, despite the good intentions of the gas refill mandates, they still need to be done in a market environment rather than in a vacuum, and that means market forces affect them—and not in a positive way. There is also the additional problem of storing gas bought at high prices, to be sold at much lower prices as the market normalizes after refill season. Germany got burned with that a couple of years ago, and it wasn’t the only one. Alas, with purchase and refill mandates, there really isn’t any way around this pain.

By Irina Slav for Oilprice.com