European Natural Gas Prices Surge Amid Global Market Tensions

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Global gas prices, including those for Russian gas, are formed based on international gas and oil product prices.

World gas markets have their key pricing benchmarks. There are several benchmarks, two of which are the most important:

1. American market (Henry Hub):

- Current price: dropped to $2.9 per million BTU (British Thermal Units) on Monday.

2. European market (TTF):

- Current price: adjusted to $572 per 1,000 cubic meters.

1. Henry Hub - American gas. This is a gas distribution hub in Louisiana, USA. This benchmark plays a leading role in shaping natural gas prices in the US, traded on the New York Mercantile Exchange. The unit of measurement is British Thermal Units (BTU). To convert the price to an equivalent of 1,000 cubic meters, a conversion factor of 35.8 is used. It is important to note that this price reflects the raw material cost only, without accounting for liquefaction, transportation, and regasification costs. Therefore, the final price paid by consumers in the US is significantly higher.

2. TTF - European gas. This is the main benchmark for gas prices in Europe. TTF stands for Title Transfer Facility, a virtual gas trading platform.

It is worth noting that gas pricing mechanisms around the world are diverse: they include exchange trading (competitive pricing, as on TTF in Europe), oil-indexation (linking gas prices to oil prices), regulated prices, and direct contracts where prices are determined by the balance of supply and demand, influencing global benchmarks including gas prices and the cost of alternative fuels (gas, oil, coal).

Prices for Russian gas, especially for export markets, have traditionally been heavily dependent on oil-indexation, but now are more oriented towards spot markets and competitive mechanisms, although the link to energy prices remains.

This overview was presented by Alexey Grishchenko, Doctor of Economics, Professor at the Department of Operational and Sectoral Management of the "Higher School of Management" Faculty of the Financial University under the Government of the Russian Federation.