Transit agreement will terminate within 3 days. Europe's natural gas faces many challenges.

Notice that Europe is about to lose a large amount of natural gas supply, as an important transit agreement between Russia and Ukraine is set to expire on December 31. Unless alternative arrangements can be reached in the final days of this year, a disruption in Russian natural gas supply through Ukraine will pose a series of challenges to an already tense market. Natural Gas Storage Traders are most concerned about the speed at which gas is being drawn from storage, as Europe's inventories are depleting rapidly. Inventories have been reduced to about 75%, reaching this level one month earlier than last winter. This is a concerning sign that not only impacts the remaining time of the heating season, but also affects reserve work later in 2025. European natural gas reserves are being consumed at a faster rate than usual Volatility may continue. Contracts for next summer have recently shot up significantly compared to winter contracts for 2025-26, making the cost of replenishing storage higher before the next heating season. Anatol Feygin, Chief Commercial Officer of US natural gas exporter Cheniere Energy Inc., stated earlier this month: "By the winter of 2025-2026, the market will face a challenge to return to comfortable storage levels." Europe may face an expensive hoarding season Russian Supply Even if it loses natural gas supply through Ukraine, Russia can still transport gas to Europe through Turkey, although the capacity of this route may not fully compensate for any potential shortages next year. Russia also transports liquefied natural gas. In fact, the EU has purchased a record amount of Russian LNG this year, despite calls from some EU officials to implement sanctions, a full regional ban has not been imposed yet. However, starting from March, Russian LNG ships will no longer be allowed to use European ports to transfer goods to other vessels outside the EU. This may mean more Russian LNG will stay in Europe. Russia remains one of Europe's largest natural gas suppliers LNG Competition Europe will have to compete fiercely with Asia for global producers' LNG goods. When natural gas prices drop, emerging Asian markets will increase their purchases. Feygin of Cheniere Energy stated that to attract more supply, Europe can turn to flexible US LNG, which is not restricted by destination. US President-elect Trump called on the EU to buy more American natural gas this month, stating that if the EU does not do so, he will impose tariffs on the EU. European Commission President von der Leyen also stated that American LNG can help replace Russian goods. However, several global LNG expansion projects, including those in the US, are facing delays. Feygin stated that by 2025, Cheniere's new project in Texas will "develop relatively slowly." The US and Russia are major LNG producing countries Hedge Funds Increasing Bets In recent years, hedge funds have increased their influence in the European natural gas market. By the end of 2024, their long positions will reach record levels - essentially betting on price increases. Some traders are concerned that the concentration of these bets may lead to sell-offs, disrupting an already fragile market. The region's economy is slowly recovering from the energy crisis of 2022, and continued oil price volatility will make it difficult for businesses and households to plan for the future. Funds' speculative positions are close to historic highs.