2021 in the natural gas market

2021 was unexpectedly challenging and dynamic for the natural gas market. Several global conditions caused a sharp price jump because of which the price of natural gas was almost 6 times higher at the end of 2021 than at the beginning of the year. This has had a significant impact on both natural gas users and natural gas traders.

This year the increase in the price of natural gas started already last winter, when the air temperatures in both Europe and Asia were very low for a long time. Due to the cold winter, natural gas consumption increased and consequently, so did demand, therefore, the 2020/2021 natural gas storage season in Western Europe ended with record low levels of underground gas storage.

Low storage levels created increased demand for natural gas in the 2021/2022 season to ensure natural gas reserves for the coming winter. At the same time, the global economy was recovering from the crisis caused by the Covid-19 pandemic. Production resumed and demand for natural gas increased further. The long-lasting hot weather in Western Europe and Asia this summer also increased the demand for natural gas as it was used to produce electricity to provide the necessary capacity for air conditioning plants to operate. The Asian region is the largest market for liquefied natural gas (LNG), offering more than 20% higher prices than in Europe. In recent years, volumes of LNG transported to Europe have been shifted to Asia, creating a shortage of LNG in Europe, and further increasing demand for natural gas.

Climate targets set by the European Union and the Green Deal to reduce CO2 emissions and global warming have also contributed to the increase in natural gas consumption. To meet climate targets, the use of fossil fuels (coal, oil, lignite, and other) is increasingly being reduced by replacing them with natural gas.

Future prices will depend on the winter outdoor temperature, the geopolitical situation, and the foreign policy pursued by the European Union and each Member State individually. Taking care of its customers, in the general conditions of the natural gas deficit, when the availability of resources is limited, Latvijas Gāze has pumped natural gas in sufficient quantity to ensure uninterrupted supplies next year as well.

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