Europe has led global LNG trade since the beginning of the year, securing every cargo it could to ensure energy supply during the colder months. However, as spring approaches, the region will need to replenish its quickly depleting storage in preparation for the next winter. Yet, Europe’s current strategy—marked by overregulation—may prove detrimental.
Global LNG imports are expected to reach a 12-month high in January, totaling 38.12 million tons, according to Kpler data. A significant portion of this went to Europe, which outbid Asian countries for the liquefied natural gas it said it would only need for a few more years. The situation now, however, calls for a reassessment of Europe’s long-term supply strategy.
Reports like one from Reuters highlight the urgency of the situation. The report revealed that Europe is diverting LNG cargos from Australia and Oman. While Omani LNG is relatively cost-effective for Europe, Australian LNG tends to be too expensive due to the vast distance. At the same time, record Russian LNG imports continue, despite European calls for a ban on these imports. This situation makes it clear: Europe will depend on LNG for a long time due to insufficient pipeline supply.
Given this, Europe should be looking for ways to secure LNG supplies. Instead, the European Union (EU) has opted to mandate the purchase of certain volumes. This approach, while seemingly practical, may be problematic. The EU’s system aims to ensure that each country with a storage facility fills it to 90% by November, reducing the risk of shortages during peak winter demand. However, the reality is more complicated.
Mandating LNG purchases creates a seller’s market, which is unfavorable for buyers—especially when Europe is increasingly watching its spending. The problem of pricing out poorer nations has been evident since Europe turned away from Russian pipeline gas, a move it initially celebrated. Once Europe enters its refill season, Asian nations with smaller energy budgets often turn to coal, as LNG becomes too expensive. Even wealthier nations like China and Japan struggle with high LNG costs.
By regulating LNG purchases, the EU inadvertently pushes poorer countries to switch from gas to coal, contradicting its climate goals. It also gives LNG sellers more power, which they are likely to use to their advantage. This policy also harms Europe’s finances, as countries forced to store gas at higher prices face potential losses once prices normalize.
The market forces influencing LNG trade have led to a paradox, as noted by Reuters. With LNG trade becoming more heated ahead of Europe’s refill season and storage levels lower than usual, summer 2025 futures prices have surged above those for 2026. As a result, traders are less inclined to stock up on gas now when they can sell at higher prices. Germany’s suggestion to subsidize the purchase of refill quota volumes has further complicated matters, as it benefits traders rather than buyers.
Countries that are required to store gas for the winter may end up losing money. Storing gas at high prices only to sell it at lower prices later is a risk Europe faces, especially given the past experience of countries like Germany. Unfortunately, with the purchase and refill mandates in place, these challenges are difficult to avoid.
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