Chart of the month: Europe’s LNG binge and the dangers of partial analysis

2022 heralded a massive structural change in the European energy industry, with LNG imports surpassing pipeline imports in a reversal of the historic pattern. The chart above illustrates just how rapidly this transformation occurred, with the sharp fall in pipeline imports matched by an equally sharp spike in LNG imports. As a result, Europe is increasingly insulated from what happens in Russia.

Since 2021, pipeline gas imports are estimated to have fallen by over 70%. But that has been largely offset by a near doubling in LNG imports as a rapid build-up of port infrastructure quickly drove down natural gas prices after the initial price spike.

One important lesson from the episode was the risk of partial analysis based on previously reliable indicators that could be subject to change following market upheaval.

A focus on the sharp fall in pipeline imports led many observers, ourselves included, to overestimate the risk of a severe recession in Europe in the first half of the year. Like others, we didn’t fully anticipate how far higher levels of LNG imports might offset the loss of Russian gas supplies, limiting the severity of the energy crunch and its knock-on effects to the wider economy.