natural gas it may be the same commodity all over the world, but its prices vary dramatically due to the complex network of infrastructure required to transport it. As a result, the global market is partly fragmented, mainly because natural gas is transported through pipelines rather than oil whose market is more consolidated and prices are the same in most parts of the world. This fragmentation of the natural gas market means not only that prices vary from region to region, but also that high prices in one part of the world are not necessarily passed on to buyers in other parts of the world.

OUR Russian invasion of Ukraine offers a clear description of the consequences of this fragmentation. Gas flows from Russian gas pipelines to Europe fell by 80% compared to mid-2021, according to the results of August 2022. fuel prices multiply by 14. Something similar happened with the prices of liquefied natural gas. However, in the US its prices LNG they simply tripled, that is, they remained much lower than in Europe and Asia.

Price discrepancy and the fact that USA they did not experience the shock received by the world natural gas market, are associated with the peculiarities of gas production and transportation. The US has historically been pegged to oil prices, as natural gas was a by-product of oil production. However, this ratio has changed over the past decade mainly due to the large production of shale natural gas.

Production soared in the US, which overtook Russia in 2012 to become the world’s largest natural gas producer, with many export terminals built. Another factor driving gas prices is the technology needed to liquefy and transport the fuel, which must be converted to a condensed form about 600 times smaller than before before it can be loaded onto specially designed ships for transport by sea or road. .

Fuel liquefaction, export, import and regasification facilities require significant investment. Thus, a shock in a particular geographic region, such as Russia’s invasion of Ukraine, could lead to price movements in different directions.

A shock, such as Russia’s invasion of Ukraine, could turn prices in different directions.

After the Russian invasion of Ukraine, Europe turned to LNG to replace Russian gas, and American LNG became the replacement. But given that the ability of the US to export LNG is established, the question arises how all this became possible. In the spring and summer of 2022, natural gas prices in Europe were high, so US LNG was diverted to Europe. Although Europe’s dependence on LNG as a substitute for Russian gas has increased, Europe’s ability to import it has not become an obstacle to market integration. European fuel import terminals had ample spare capacity even before the Russian invasion of Ukraine.

With the addition of floating mobile fuel storage and regasification facilities, Europe has the infrastructure needed to store large volumes of imported LNG on its territory.

*Mister. Rachel Breiser, Andrea Pescatori, and Martin Sturmer are staff members of the IMF and the article was published on the IMF blog.