How Long Before Putin Shuts Off Natural Gas Delivery to Europe?

by Mish Shedlock, Mish Talk:

Key EU Natural Gas Points 

  • The long term average of of natural gas price in the EU is in the 12-15 range. It’s now 148.
  • The EU is paying 10 to 12 times its long-term average
  • Since June 8 (blue box) the price rose from 79 to 148, a rise of 87 percent.

Before addressing what happens if and when Putin shuts off natural gas to Europe, let’s take a look at what’s happening in the US.

The price units are not the same so it’s best to think in percentage terms.

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US Natural Gas Price 

US Natural Gas Price courtesy of Trading Economics, annotations by Mish

US Natural Gas Price courtesy of Trading Economics, annotations by Mish

Key EU Natural Gas Points

  • The long term average of of natural gas price in the US is about 3. It’s now 5.73
  • Whereas the EU is paying 10 to 12 times its long-term average, the US is now paying about 1.9 times its long term average.
  • Since June 6 (blue box) the price fell from 9.3 to 5.73, a decline of about 38 percent.

EU vs US Since Early June

  • EU: +87 Percent
  • US: -37 Percent

Q: What’s going on?
A: Fire!

On June 8, a fire at the Freeport liquid natural gas (LNG) terminal near Galveston,  Texas, shut down the terminal. Freeport is the second largest LNG exporter in the US. It accounts for 15% of LNG exports.

LNG that would be exported to the EU, now won’t. That increases the supply in the US and decreases supply to the EU.

The shutdown was expected to last for days. On June 10, the estimate was a few weeks.

On June 30, the Biden administration citing safety concerns said Freeport could not restart without permission. Bloomberg notes that Feeeport now plans to partially resume operations in October.

Freeport must take a series of corrective actions and send weekly updates to agency, according to a federal notice Thursday.

“It appears conditions exist at Freeport’s LNG export facility that pose an integrity risk to public safety, property, or the environment,” the notice said.

Q: Is Biden playing politics to keep the US price down?
A: Unclear. Freeport has had other safety issues in the past.

Regardless, Biden certainly is pleased by these developments while the EU takes another supply shock.

With that backdrop let’s ponder the first of two key EU questions.

When Will Putin Shut Off Natural Gas Delivery to Europe?

That is likely a “when” not a “what if” question.

No one can answer other than perhaps Putin. He might not even know because the situation is fluid.

Timing depends on when the EU expects to fill its natural gas storage for the Winter months.

The EU telegraphs that answer with daily reports of progress in filling storage facilities. Putin could act now, or August, or later perhaps even taking long-term weather forecasts into consideration.

Whereas the EU is mostly transparent, Putin operates in a nightmare of fog. He will shut off the gas (or not) at a time of his choosing to achieve his goals.

Good luck figuring that out because it also depends on the EU’s actions to fill storage.

What’s the Economic Impact When the Flow Stops? 

That’s the key question. Economic impact analysis is amusing and polarized.

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