Free Dive Analysis on Natural Gas

The consequences of the EU decoupling from Russia’s supply

On June 17, 2025, the European Union launched an ambitious plan to phase out Russian oil, gas, and eventually nuclear fuel by 2027, under the REPowerEU framework. To avoid vetoes from Slovakia and Hungary, the measure is not labelled as a new sanctions package, but rather embedded into EU legislation.

This will legally compel European companies—such as France’s TotalEnergies, Spain’s Naturgy Energy Group, and Germany’s SEFE—to terminate their long-term contracts with Yamal LNG, a subsidiary of Novatek. From the end of 2025, the proposal bans all spot contracts. Long-term contracts must be dissolved by end-2027. The proposal includes a force majeure clause, offering legal cover to EU buyers and protecting them from litigation.

Implications for EU Gas Supply
The sharp decline in Russian gas—which still accounted for roughly 40% of EU imports in 2021 but has since dropped to around 15–19% (pipeline + LNG combined)—creates a material supply gap. The EU aims to bridge this through higher LNG imports, expanded pipeline capacity from Norway, Algeria and Azerbaijan, and energy efficiency measures via REPowerEU.

Qatar’s Role
Qatar is expanding its LNG exports via the North Field expansion (targeting 126 MT annually by 2027). Germany signed an LNG deal with Qatar back in 2022. While the EU still imported record volumes of Russian LNG in 2024, Qatar’s share could gradually rise to 10–15% of EU LNG imports.

Middle East Tensions (Israel–Iran)
Rising tensions threaten the Strait of Hormuz, through which ~20% of global LNG and oil flows—including Qatari cargoes—pass. Freight rates for LNG carriers have risen sharply in recent weeks due to heightened insurance premiums and rerouting via the Cape of Good Hope (source: Reuters). Qatar has warned energy companies and EU governments of the risks and is temporarily keeping tankers outside the Gulf. This adds to volatility and cost, and if conflict escalates, deliveries may be disrupted. A more diversified LNG sourcing strategy becomes necessary—primarily involving Canada and the U.S., where oversupply still prevails.

Asia/China: Ripple Effects of Russian Gas Exit from Europe
Is China absorbing all the freed-up Russian gas? Not entirely, but volumes are rising. Deliveries via the Power of Siberia pipeline have grown from 16 bcm in 2022 toward 38 bcm in 2025. A second pipeline—Power of Siberia 2—is being reconsidered, partly due to the same Middle East risks.

Russia is pivoting toward Asia, but cannot fully offset its lost European volumes. Even at full expansion, capacity and margins will remain limited.

Additional Qatari LNG to Asia?
Roughly 82% of Qatar’s LNG currently goes to Asian buyers, where competition is fierce. China continues to sign long-term deals, but spot volumes remain constrained—high spot prices (>$10–12/mmbtu) make incremental Qatari LNG less attractive.

Growing LNG Trade from the U.S. and Canada
U.S. LNG exports have risen from ~19 bcm in 2021 to ~45 bcm in 2024. The U.S. now supplies nearly 50% of EU LNG. Political pressure from Washington to expand LNG exports to Europe is increasing, with public statements from President Trump reinforcing the trend.

Canada is investing heavily in new LNG terminals. While current EU volumes are modest, infrastructure is scaling up quickly, with bilateral momentum between Canada and the U.S.

Price Outlook: U.S. and Canadian LNG
In the U.S., domestic gas prices (Henry Hub) are stable around $4.1 to $4.2 per mmbtu. Export prices to Asia are significantly higher—averaging ~$8.5 per thousand cubic feet in 2025, up 35% from 2024. This leaves a solid margin for U.S. LNG producers.

In Canada, the price gap is even more striking. Domestic gas (AECO index) trades around $0.71 per mmbtu. These low input costs allow Canadian LNG exporters to remain highly competitive, even with currently limited volumes. As projects like LNG Canada (Kitimat) ramp up toward full capacity by 2027–2028, Canada is on track to become a meaningful low-cost LNG supplier to Asia.

In short: the U.S. offers stable production and healthy export margins, while Canada is emerging as a cost-efficient LNG hub. Both countries are solidifying their roles in the global LNG market, with Asia as a key destination.

Free Riders Portfolio Positioning
We are positioning the Free Riders Portfolio to reflect these structural shifts.

We hold ExxonMobil ($XOM), offering us diversified exposure to global oil and gas production across multiple geographies. Last week, we added a new tranche.

Through our position in Range Resources ($RRC), we are exposed to vast gas reserves in the Marcellus basin. With strong fundamentals and long reserve life, Range is well placed to benefit from rising U.S. LNG exports over the next two decades.

Lastly, we increased our holding in ARC Resources ($ARX) to gain more exposure to Canada’s growing export capacity.

This positioning reflects our belief in North America’s pivotal role in the next energy chapter—and in the complexity premium that comes with energy security.