Natural Gas Prices and Markets
Historically, natural gas was a substitute for oil in heating and industrial processes, resulting in the rise in oil index pricing which priced gas against a major benchmark price for oil. As a global market for LNG has developed, and natural gas has become more widely used, oil indexing has been replaced by the practice of pricing gas against a leading benchmark gas price.
According to the latest price statistics released by major international agencies, the market has seen unprecedented volatility in gas prices from 2020 onwards. Natural gas prices initially fell to record low levels in the three major gas hubs, triggered by nationwide lockdowns and a pandemic-driven low demand environment. Prices then recovered quickly in 2021 and rallied upward, as the pace of global economic activity picked up, and gas demand increased, outpacing capacity additions. Gas prices continued to climb during the early part of 2022, driven by the Russia-Ukraine conflict that started in February. The general uncertainty regarding Russian gas exports to Europe as a result of the ongoing conflict propelled European prices to new record highs, triggering a global energy crisis. Asian prices have also been impacted by the geopolitical risk, as a disruption of pipeline supplies to Europe resulted in even more competition for spot LNG cargoes.
- EIA (US Energy Information Administration), US Natural Gas Prices [Last accessed 15 May 2023];
- European Commission, Eurostat Database [Last accessed 29 May 2023];
- Snam / International Gas Union / Rystad Energy, Global Gas Report 2022;
- The World Bank, Electricity Information 2022 • Commodity Markets (data based on Bloomberg, Thomson Reuters Datastream, The Wall Street Journal, World Bank, World Gas Intelligence, Official Statistics of Japan) [Last accessed 26 May 2023];
The supply growth experienced in the United States after the shale boom resulted in a significant decline in gas prices, with values around $2/MMBtu (million British thermal units) between 2015 and 2016. Such a dramatic improvement in cost competitiveness quickly led to gas becoming competitive with other fuels, thus natural gas has gained share across all sectors of energy use in the US.
The drop in Henry Hub prices recorded an all-time low in June 2020, as domestic demand declined due to lockdowns and seasonality, and as international buyers canceled more US LNG cargoes.
The price of energy in Europe depends on a range of different supply and demand conditions, including the geopolitical situation, the national energy mix, import diversification, network costs, environmental protection costs, severe weather conditions, or levels of excise and taxation.
In 2022, the European Commission launched a new plan called REPowerEU to uplift Europe’s energy independence, in response to the Russia-Ukraine conflict. The main aim of this plan is to gradually phase out EU dependence on Russian fossil fuels by 2027, with significant effort to rapidly increase the use of sustainable energy.
Gas prices are of particular importance for international competitiveness, as gas might represent a significant proportion of total energy costs for industrial and service-providing businesses. In contrast to the price of other fossil fuels, which are usually traded on global markets with relatively uniform prices, there is a wider range of prices within the EU Member States for natural gas.