"Skyrocketing Natural Gas Prices to Fuel Inflation in Europe"

Hana Financial Investment Report

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Opinions have emerged that the sharp rise in natural gas prices in Europe, caused by political conflicts with Russia, will stimulate inflation within the Eurozone.

On the 30th, Hana Financial Investment stated, "Europe mainly receives pipeline gas supplies from Russia, but concerns are growing that gas supply could be cut off due to issues such as the Nord Stream 2 approval controversy and the intensifying conflict between Russia and NATO related to the Ukraine situation," adding, "As natural gas demand seasonally increases, political uncertainty could prolong the energy crisis in Europe."

Currently, natural gas prices in Europe have skyrocketed after Russia halted supplies through the Yamal-Europe gas pipeline. This has caused the price gap between natural gas in the US and Europe to widen sharply. While the US can procure gas domestically, Europe is highly dependent on imports. Ships that were supposed to transport natural gas to Asia are now heading to Europe to sell at higher prices.

Besides political issues, the decrease in wind power generation has increased the demand for natural gas as a substitute. The wind intensity in Europe has weakened, but natural gas production remains limited, exacerbating supply-demand imbalances. Additionally, factors such as reduced investment in natural gas fields, plant maintenance and repair work, and shutdowns due to natural disasters have further worsened production disruptions. Since natural gas is primarily composed of methane, the likelihood of long-term investments to increase production capacity is low. Previously, at the Conference of the Parties on Climate Change, major countries including the US and the EU agreed on a global methane pledge aiming to reduce global methane emissions by at least 30% by 2030 compared to this year.

The ongoing imbalance in natural gas supply and demand, which is linked to electricity prices, is expected to increase inflationary pressures in the Eurozone. Kyu-yeon Jeon, a researcher at Hana Financial Investment, explained, "The sharp rise in commodity prices this year has led to increased production costs for companies and inflation," adding, "Although the upward momentum of other commodities is slowing in the second half of the year, natural gas is showing a contrasting trend due to geopolitical risks and supply shortages."

This content was produced with the assistance of AI translation services.