Key information
- Ukraine will lose transit rights as Russian gas no longer passes through the country.
- Europe has secured other sources of supply, which mitigates the impact on energy prices.
- U.S. natural gas futures fell but still posted their biggest annual gain since 2016 due to strong export demand.
The end of Russian gas transit through Ukraine on New Year’s Day marks a change in Europe’s energy landscape. While Ukraine will lose substantial transit fees and Gazprom will see reduced sales revenues, Europe has secured alternative sources of supply, mitigating the impact on energy prices.
Slovakia, for example, has partnered with Azerbaijan to ensure its gas needs are met. Despite initial price increases, European natural gas futures have stabilized, although colder temperatures could push demand higher in the coming weeks. In contrast, U.S. natural gas futures fell as traders took profits, but still posted their biggest annual rise since 2016 due to strong export demand.
The changing energy landscape
The United States stands to be one of the main beneficiaries of this situation. Norway and the United States have replaced Russia as Europe’s main gas suppliers, with the United States dominating LNG exports. The increase in U.S. LNG shipments to Europe has been rapid, rising from 27 percent of total European imports in 2021 to 48 percent in 2023. This trend is expected to continue as LNG import capacity increases. Europe will increase significantly.
-Long-term outlook for U.S. natural gas
While U.S. exports to Europe saw a decline in the first eight months of 2024 due to increased use of renewable energy, a decrease in Russian gas supply is likely to propel a recovery in demand of American LNG. The long-term outlook for U.S. natural gas remains positive, driven by increasing LNG exports and expanding electricity demand fueled by factors including AI, clean energy manufacturing and cryptocurrencies.
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