Taps Coogan – January 9th, 2023

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The following graphic, from Reddit creator JCC Eagle, shows how the sources of German natural gas have changed since the start of 2021.

The punchline is that Germany has gone from as much as 60% import dependency on Russia before the war, with that poised to increase with the completion of Nord Stream 2, to a roughly 0% import dependency, something that many people said would not be impossible (not us).

As we noted in September when natural gas prices were stratospheric based on fears of winter shortages, Germany could probably make it through a normal winter without blackouts. While the winter isn’t over, that is now looking to be the case. Accordingly, European gas prices have fallen roughly 80%.

For years, people have conflated global natural gas export tightness with imagined European import capacity constrains. While the EU still lacks sufficient LNG import capacity and interconnector pipelines to completely drop Russian imports, the remaining gap isn’t insurmountable. Demand curtailment, a quasi-recession, and an exceptionally warm winter in Europe are buying them the time needed to round out the LNG and pipeline infrastructure needed to wean themselves completely off Russian gas, gas which was never much cheaper than LNG to begin with.

Of course, none of that resolves the global tightness in natural gas and LNG export capacity. Remember, natural gas prices were very high in Europe and Asia before the war in Ukraine.