Even with the increase of 400,000 barrels per day announced by OPEC+ for February, energy markets remained on edge as we rolled over into 2022.

So far, Europe has been challenged the most and is facing some of the highest gas prices worldwide amid delayed approvals for Gazprom’s Nord Stream 2 pipeline. Although several EU companies have invested heavily in the pipeline, the project is pending final German EU regulatory approval. Russia seeks long-term contract guarantees—while arguably using the project as leverage over the prospect of Ukraine’s admission into NATO. Russia has reportedly been amassing troops and equipment along the border ahead—the possible prelude to an invasion, some fear. Meanwhile, the U.S. and NATO are warning Russia of the immediate consequences of such a move.

Some in the U.S. and elsewhere had already cautioned that the pipeline would increase Europe’s dependence on Russian gas, ultimately undermining stability in the region. Although there have been talks between Presidents Biden and Putin, the third international meeting over tensions in the region ended without a clear outcome.

Natural gas appreciated this past week, moving up 10 percent to more than $4.85 per mmBTU but falling 10 percent in the next day’s trading. So far, winter has been mild overall across most of Europe. Nearly half of LNG vessel exports last month were headed across the pond to Europe, compared to only about a third in the same period in 2021. Heavy export demand, both to Europe and Asia, is one reason stocks have tended to lag last year’s levels across the U.S.

It’s encouraging that OPEC+ is lifting output as we move into February, and higher prices should boost production. The market may remain on edge until the situations with Ukraine and Nord Stream 2 pipeline are more defined. Of course, all this happening during winter and peak gas consumption is only heightening price volatility, which consumers are paying.

NYMEX & CME natural gas futures

Source: DTN, McKeany-Flavell
Posted by: Information Services
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