EU Natural Gas Supplies Falter as Winter Approaches

European natural gas inventories have fallen below normal levels as winter approaches. At 68% of storage capacity, they are lower than the usual 85%. Disruptions to supplies from the Middle East and the EU's shift away from Russian imports due to the war in Ukraine are contributing factors.

The low inventory position has pushed natural gas prices higher, with some suggesting it is more impactful than crude price increases. In Germany, a fringe party advocating for buying Russian gas again is gaining traction in elections.

Natural gas is sold in euros/MWh in Europe, while the US sells it in MMBtus. Converting the European price to the US equivalent yields 26.50 dollars per MMBtu, making it 7.68 times the US price. This makes US producers incentivized to export as much gas as possible to Europe.

However, shipping and export capacity limitations restrict the amount of exports that can be sent. The US has increased LNG exports since Russia invaded Ukraine, but growth is slow due to construction timeframes for new facilities.