Liquefied natural gas (LNG) and infrastructure interconnectivity remain key to Europe’s long-term gas supply security, Fitch Ratings says in a new report. The worst of the energy crisis in Europe, including gas rationing, has been avoided in the short term, in line with our expectations, due to a combination of ample LNG flows and mild weather.

Skyrocketed EU gas prices reduced European demand by over 10% in 2022, also in line with Fitch’s expectations. We assume demand to drop further in 2023, taking the total decline to 15% from 2021. The extent of price-driven demand erosion has varied by country.

LNG has been, and will continue to be, a key alternative source of gas to replace reduced Russian pipeline flows. Our analysis still assumes zero Russian gas flows to the EU from January 2023. Global LNG markets will remain tight this year, amplified by increased demand from China after lifting its zero-Covid policy. However, Fitch believes that sufficient LNG volumes will still be available for Europe, albeit at prices that reflect intensifying competition with Asian buyers.

As a result, we expect European gas prices to be very volatile and still high compared with pre-war levels, and will only sustainably normalise from 2025, when the required LNG facilities and interconnectors are put in place in Europe.

‘The Worst in Europe’s Gas Crisis Has Passed’ is available at www.fitchratings.com or by clicking on the link above.
Source: Fitch Ratings