The US-China trade war has rewritten the macroeconomic outlook for 2025, and with it the global demand picture for liquefied natural gas (LNG).

Swingeing import tariffs could be lifted just as quickly as they were introduced. However, even a swift resolution at this stage would be unlikely to purge the bearish sentiment now dominating the European natural gas market.

This episode catches up on the many market-moving events of recent weeks, with a focus on disruption to energy trade, relaxation of the EU’s gas storage targets, and bearish factors weighing on the summer gas demand outlook.

In the reader Q&A, I fielded questions relating to my recent take on the shift to a new lower pricing regime, and the risks posed by a cratering price environment to customers buying US LNG.

I also share my thoughts on The New Joule Order, a thought-provoking essay from esteemed energy commodities analyst Jeff Currie.

The full transcript is included below.

Thanks for listening,

— Seb

P.S. Don’t forget to share your questions, thoughts and reactions for inclusion in the next episode. I prioritise input from paid subscribers 😉

More from Energy Flux:

Episode transcript:

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Hi there, and welcome back to Energy Flux On Air.

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I'm your host,

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Seb Kennedy,

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founding editor of Energy Flux,

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the energy newsletter analyzing European natural gas and global LNG markets through

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the lens of Europe's energy transition and global geopolitics.

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It's been quite a while since my last episode.

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I've been quite busy with the house move, transatlantic travel, Easter break.

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So apologies for those of you who have missed energy flux on air.

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I've been dying to get back into the studio to talk over everything going on in

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energy markets and the global geopolitical panorama.

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And I finally found time and I'm hoping to get back onto a more regular recording schedule.

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To give a measure of how much time has elapsed since the last episode,

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the price of European gas traded on the Tidal Transfer Facility,

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that's the TTF,

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the European benchmark,

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has dropped from more than 43 euros per megawatt hour on the 19th of March to less

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than 32 euros at the end of last week.

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That's a drop of more than a quarter in barely more than a month.

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Since the last episode,

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we've had Liberation Day,

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the start of a bitter Sino-US trade war with both sides seemingly entrenched,

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a stock market shock,

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bond markets wavering,

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dollar devaluation and a rewriting of both the global macroeconomic script and the

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security guarantees.

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that underpinned 80 years of global trade since the Second World War.

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So TTF settled on Friday below €32 per megawatt hour,

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but that's the first time it's been that low in a year.

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€32 is approximately $10.80 per MMBTU.

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And that sell-off has,

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as usual,

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correlated quite strongly with a sell-off in hedge fund long positions.

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The hedge funds that bet on the future price of TTF, as you'll recall, they had an eye-watering

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net long position of 292 terawatt hours and that was in February when the price on

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TTF was reaching for 60 euros per megawatt hour we've seen massive liquidations two

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big sell-off periods in February and in April April of course being triggered by

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the Liberation Day trade war which I mentioned at the start net position went from

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292 terawatt hours to just 86 terawatt hours

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or a 15 billion euros long bet to a 5 billion bet.

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So essentially the hedge funds have sold off 10 billion euros worth of length in

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TTF futures since February.

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But I don't think the sell-off has finished.

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And the reason I say that is because if you go back 12 months to when TTF was last

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trading at around about the 32 euro per megawatt hour mark,

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then at that point,

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hedge funds had a net bullish position of,

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on average,

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62 terawatt hours throughout April 2024.

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And we're currently 86 terawatt hours.

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So if anything,

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you could say that while the momentum is towards further sell-off,

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to the extent that the historical correlation between price levels and net position

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is an indicator of where equilibrium lies,

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then you could argue that

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further sell-offs are required to get down to sort of 62-ish terawatt hours.

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And depending on how bearish this summer turns out to be in terms of physical demand,

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policy changes,

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geopolitical developments,

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then it's entirely feasible to imagine there being,

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I mean,

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you know,

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the hedge funds,

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they do go net short.

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um when the market flips extremely bearish so it's not out of the question that the

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entire net position could be sold off and hedge funds could start shorting ttf on a

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net basis anyway so since the last episode there's also been some interesting

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developments on the policy front so the european parliament's energy committee has

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voted to lower the eu's gas storage targets to 83 by the first of november and to

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scrap the intermediary targets

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So you'll recall the EU has this target.

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Everybody had to reach a certain percentage fill level every two months throughout

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the filling season.

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But that's probably not going to matter.

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There have been several policy suggestions and proposals and it's all open to negotiation still.

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But the direction of travel is very firmly towards a place where it looks like the

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gas storage targets essentially are meaningless.

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And they're just a guide because...

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you know after all is said and done after everybody's negotiated and the

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derogations have been issued and the exceptions have been carved out what really

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matters is is there a penalty for non-compliance for falling short of your gas

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storage fill level and there never really was one and there were measures that

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could be taken but there was never actually a financial penalty to be levied upon

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the gas storage operators and i did say last year you need to watch their behavior

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the gas storage operators to what extent are they going to comply

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um and potentially not necessarily bankrupt themselves but you know lose a lot of

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money just in the name of compliance with an arbitrary target for refilling these

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massive underground gas storage facilities and evidently uh i think when there's no

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penalty then it's an easy decision to take you know why would you lose money

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storing expensive gas to sell it at a loss in the future and pay all the storage

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costs associated with that just to comply with a target which

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is only arbitrary and doesn't carry a penalty for non-compliance so i think that

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one was quite easy to predict and it seems like it's going to be that way this year

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not to say that europe doesn't need to buy gas this summer absolutely does need to

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buy gas needs to get some gas into storage for next winter but

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The physical panorama in the market is looking relatively loose.

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We've got some new LNG projects coming on stream this summer.

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The pan-EU scramble to procure gas will not occur in a way that drives up prices,

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and there will be probably more measured procurements,

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and I think

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paying very close attention to the price spreads,

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calendar spreads,

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to make sure that the gas storage operators aren't taking on an undue amount of

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price risk by storing gas at prices they can't then recover their costs from.

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So the TTF term structure is now pretty flat.

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The negative spreads that were blighting the markets over the kind of tight winter

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months when the bull run was in full swing,

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those essentially corrected themselves.

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So we did have a situation where gas was cheaper in the future than in the present

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month or the front month.

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And obviously that was a big disincentive for storing because you wouldn't store

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something that's going to get less valuable over time and incur costs for doing so.

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but still the the signal the market signal for storing gas is very weak you need to

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have a sufficient spread between the price of gas at the time of procurement and

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the winter months when you're hedging in your sales to obviously cover your costs

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your storage costs your cost of capital and hopefully you know to make a margin if

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you're a

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If you're a commercial player, not all gas storage operators are.

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Some are mandated to operate in a strategic way,

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but some are commercial operators and they do need to make some money.

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But either way, none of them want to lose money.

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A negative spread would have implied a loss on storage, which is why there was this...

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Debates in Europe about,

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well,

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do we subsidise the cost of refilling our gas storage facilities?

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I don't think that's going to happen now.

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It doesn't seem necessary.

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And there is a much more relaxed approach to how the gas storage capacity in Europe

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should be managed.

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That's only a good thing,

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because it seems that politicians are taking a much more realistic view to...

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how the gas market will pan out over the next sort of 12 to 18 months.

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When,

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of course,

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if you've been reading energy flux,

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you'll be aware that my view is very strongly that we're heading towards a new

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pricing regime because of the way that the global liquefied natural gas market is

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developing with the onset of new supply,

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which is coming into the market at a rate that exceeds the rate of demand growth.

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So if the supply growth outstrips demand growth,

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then you have a loose market where there is a kind of nominal surplus.

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And that will just mean that prices have to go lower in order for the market to

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find its equilibrium and then for that supply to be soaked up.

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And you will see that happen.

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You will see price sensitive demand come back into the markets in markets like Bangladesh,

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Pakistan.

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Pakistan, maybe Vietnam, where you'll see energy imports increase as the price goes lower.

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But right now we're seeing,

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in terms of the physical balances,

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EU energy imports hit a record in the first quarter of 2025.

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They dropped off in April.

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as demand fell away.

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Asian demand is also very soft.

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We've seen Chinese imports flagging quite a bit.

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Weekly imports of LNG have come in at the lower end of the five-year range since

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late 2024 and throughout 2025,

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according to data from data provider Kepler.

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And Kepler,

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in fact,

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their analysts ran some interesting figures recently around the way that the softer

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macroeconomic outlook was impacting gas markets or likely to impact gas markets.

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And while this isn't their central scenario,

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they did say,

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let's have a look at the worst case macro scenario in combination with the

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potential for a cool summer.

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So rather than there being lots and lots of heat waves where you have lots of

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cooling demand for running air conditioning,

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driving power prices crazy and people shipping in LNG vessels to fire those gas

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turbines to run the AC units.

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If you get a cool summer where that doesn't happen, plus you get like the worst possible...

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macroeconomic