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    European governments act on gas supplies by lowering gas demand and increasing subsidies


European governments are hoping to assure gas supplies this winter by lowering gas demand and increasing subsidies.

by: Rystad Energy

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European governments act on gas supplies by lowering gas demand and increasing subsidies

Last week, a double whammy hit European gas markets.  

First, it was confirmed that the Freeport LNG facility will be offline for 90 days before gradually ramping up LNG production by the end of the year.  


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Freeport LNG has over the last months been exporting most of its volumes to LNG thirsty Europe, so with the shutdown 2.5% of Europe’s gas supply disappeared overnight.  

Secondly and more seriously, what hit the European gas market even harder last week was that Nord Stream 1 reported that it will reduce exports from Russia to Europe from 167 million cubic meters (mcm) per day to 67 mcm per day.  

With this blow, another 7.5% of Europe’s gas supply disappeared instantly.  

This news caused the TTF gas prices to surge from €83 per MWh on Monday 13th ending the week at €117 on 17 June. 

Germany has responded by introducing additional measures announced by the Federal Ministry for Economic Affairs and Climate Action (BMWK) on 19 June, which includes planned reductions in electricity use, introducing a gas auction model to reduce gas usage in the industrial sector in the hope that these moves will strengthen gas storage in Germany.  

Germany also plans to partially shift to coal-fired plants for power generation to meet electricity need, later similar decisions were proposed by Netherland and Australia that more coal should be burned to secure the energy demand in an emergency or if gas supplies from Russia are further restricted. 

For Spain and Portugal, a one-year period gas price cap had been put in force since 14 June with a total subsidy of €8.4 billion (€6.3 billion for Spain and €2.1 billion for Portugal) to lower the input costs of power plants and benefit end-users.  

Under the price cap mechanism, during the first six months a price cap of gas sold to the electricity power plants will be set at €40/MWh.  

As of the seventh month, the price cap will increase by €5 per month, resulting in a price cap of €70/MWh in the twelfth month.   

This gas-for-power price cap is likely to trigger more gas consumption and more electricity exports with the increased power demand for cooling as a heatwave is now rolling across the region.  

As a result, Spain’s electricity exports increased to all-time-high with the monthly net-exports of 1.55 TWh and 1.27 TWh in April and May, respectively.  

The electricity day-ahead market prices of Spain and Portugal remain relatively stable, averaging at 186 Euro/MWh in June so far while both PVB and TTF gas prices soared after the reported outages at the Freeport LNG facility and Nord Stream 1 pipeline last week.   



Henry hub gas prices have slumped below $7 per MMBtu on last trading day before the three-day holiday break, settled at $6.944per MMBtu following a huge drop on 14 June.   

With the higher-than-normal temperature, Gas-for-power generation have reached the level of 5.29 TWh for the US Lower 48 on 15 June and this indicates strong cooling demand in the power sector for the coming days.  

EIA reported a storage level of 2095 billion cubic feet (bcf) on 16th June and a weekly net change of 92 bcf addition in underground storage.  

But the current storage is still 14% lower than the year-ago level and 13% lower than the five-year average.  

Therefore, there is little reason to believe that US gas price would step into a downward trend and the US gas market is expected to remain tight with a blistering summer around the corner and relatively low storage levels.  


As one key export destination of US LNG, Asian buyers would like to lift orders due to the tight spot volumes and high price.  

Some utilities are also reported to have an ample inventory to hold back chasing spot volumes amid higher price offers from European buyers. 

According to the Japan Meteorological Agency, a hot summer is estimated for most areas of Japan for the remaining days of June, and this will stimulate more gas demand as higher gas-fired power generation will be needed to meet cooling demand.  

Chinese gas demand is recovering at a slow pace due to the resurgence in Covid cases in Beijing recently, while gas demand in the industrial sector and commercial sector remain flat.  

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.