Santa Claus could bring European businesses and families an unwelcome gift: higher energy bills. Blame the volatility of the liquefied gas market, on which the continent has increasingly depended since Russia invaded Ukraine in February 2022. Two consecutive winters have been overcome thanks to the arrival of special ships carrying liquefied natural gas (LNG), but as the third winter is upon us, the situation could become more difficult. “For now, stocks in Europe are full and availability for this winter seems guaranteed,” an operator told the Financial Times newspaper. «But anything can happen. All it takes is a few interruptions in supplies and things could get really bad.”
If in 2021 LNG represented only 20 percent of total gas supplies in the European Union, today the share has risen to 35 percent. However, relying on this source has some disadvantages. LNG requires a complex process that includes liquefaction, transportation by ship and subsequent regasification in terminals, resulting in higher costs than gas transported via pipelines. This process, in addition to increasing the price, makes the LNG market particularly volatile, influenced by global demand and geopolitical dynamics.
Price differences between LNG and gas «Via Tubo»
Historically, natural gas transported via pipelines has always been cheaper than NGl, thanks to its lower logistical complexity. Long-term contracts for pipeline gas, such as the Russian one, are often linked to formulas indexed to the oil price or the local market (for example, the European TTF), keeping costs relatively stable.
On the contrary, LNG prices are influenced by factors such as immediate demand on international spot markets, creating price fluctuations that can be much more pronounced, especially in periods of high demand, such as the winter months. Before the war in Ukraine, Russian fuel had prices that fluctuated, depending on the type of contract, between five and 15 euros per megawatt hour, while LNG regularly exceeded 20 euros. With the outbreak of the conflict, gas prices on the Amsterdam market soared to a peak of 236 euros and then stabilized at around 30 euros. Lately the price has started to rise again and in November it rose above 40 euros per megawatt hour. In recent years, Europe has reduced gas consumption, thanks to the energy transition and milder winters, but the tug-of-war between Europe and Asia for fuel transported by sea becomes more intense in the cold months, when demand for heating increases.
The world’s largest LNG exporters are the United States, Qatar and Australia. The United States of Joe Biden have become the number one exporter following the rapid expansion of liquefaction infrastructure, while Qatar continues to maintain a dominant position thanks to abundant reserves and consolidated production capacity. Then there is Australia which, despite focusing mainly on Asia, remains one of the main players in the global LNG market. Result: Of the current 370 million tonnes currently imported into the global liquefied gas market, the United States and Qatar accounted for approximately 21 and 19 percent of supply, respectively.
Paradoxically, however, Russia remains among the main suppliers of LNG in Europea source which for now is not sanctioned (unlike gas “via pipe”). Thus, while the percentage of this Russian fuel has fallen from over 40 percent of imports into Europe in 2021 to around 8 percent in 2023, LNG still represents 16 percent of imports into the continent, beaten only by American. A high share, which the President of the European Commission Ursula von der Leyen wants to reduce.
A poor offer
In this already quite fragile and complex scenario, further problems arise. In fact, despite the growth in production capacity, infrastructure limitations and delays in new projects are slowing down the global supply of LNG. In 2024, global LNG production increased by just 2 percent, well below the average annual growth of 8 percent between 2016 and 2020.. This slowdown has had repercussions on the availability of LNG, making supply more difficult. Some traditional liquefied gas producers, such as Angola, Egypt and Trinidad and Tobago, have faced operational difficulties that have contributed to global supply stagnation.
Another element contributes to worsening the situation: the Russian gas transit agreement between Russia and Ukraine expires on December 31, 2024, leading to a potential deficit of around 15 billion cubic meters of gas per year. The possible interruption of supplies through this route could further exacerbate the crisis, creating shortage situations that would make it necessary to use more LNG to fill the gap. This would not only increase costs, but could also slow down the distribution of fuel in Europe.
Italy, in particular, finds itself having to face a complicated situation. With four active regasifiers, our country has increased its use of LNG, importing gas mainly from countries such as Qatar and the United States: in 2024 Qatar rose to 43.5 percent of Italian liquefied gas imports while the United States covers 33.9 percent (with an increase in the share of 6.3 percentage points). But in the meantime, Italy has also increased imports of Russian gas via pipe from the Tarvisio crossing, going from 4 percent of the requirement in 2023 to 10 percent in 2024.
Greater production in 2025
According to analysts, the LNG market is destined to remain volatile in the coming years. Major exporters such as the United States, Qatar and Australia will continue to dominate the market, but forecasts for 2025 suggest that supply growth could accelerate as new liquefaction plants come online, increasing global production of about 6 percent. This could help meet the growing demand, but Geopolitical risks and disruptions in supply channels continue to threaten market stability.
Europe will face increasingly difficult challenges to ensure secure energy supplies. Competition with Asia, which is also trying to secure a greater volume of LNG, will multiply the difficulties. The possible closure of critical channels such as the Hormuz Canal or other disruptions to maritime flows could reduce the availability of LNG on the global market, raising prices. In an increasingly uncertain context, Europe will have to work to ensure that its energy network is more resistant to external shocks, and that it is able to face future challenges, be it harsh winters, a growing global demand for LNG, or new geopolitical crises.
