The price of European gas has crossed €50/MWh, a symbolic threshold not seen for a year. A freezing winter, the cessation of Russian transit via Ukraine and declining stocks are putting upward pressure on prices. A context that could…
The price of European gas reached a symbolic milestone this Tuesday, exceeding 50 euros per megawatt hour, a level not seen for more than a year. This notable price increase is influenced by several key factors, including a particularly harsh winter, the imminent expiration of a gas transit agreement between Ukraine and Russia, as well as dwindling European reserves.
An explosive cocktail for gas prices
The Dutch TTF futures contract, a benchmark for the European gas market, was trading at 50.43 euros per megawatt hour around 3:35 p.m. GMT, up almost 5%. We have to go back to October 2023 to find such price levels. This surge is mainly explained by the announced end of the transit of Russian gas via Ukrainian territory to Europe, effective January 1, as confirmed by the Ukrainian operator. Some central and eastern European countries, such as Austria, Hungary and Slovakia, remain heavily dependent on these Russian supplies.
According to analysts at the Oxford Institute for Energy Studies, this interruption of flows should accelerate the erosion of European stocks and maintain upward pressure on gas prices. Persistent freezing temperatures since the end of October have already boosted heating consumption. In addition, the lack of sunshine and wind has forced greater reliance on gas to produce electricity.
European reserves under pressure
Currently, the average level of gas reserves in the European Union is at 73% according to the AGSI platform, compared to 86% at the same time last year. Faced with this worrying situation, Brussels has decided to raise the required threshold for European gas stocks on February 1, 2024, bringing it from 45% to 50%.
Another disruptive element was added to this tense context. The giant Gazprom has announced that it will end its deliveries to Moldova on January 1, due to a financial dispute with this former Soviet republic which has just reappointed a pro-European president. Although it predates the Ukrainian conflict, this dispute with Gazprom further weakens the region’s energy security.
American LNG, expensive solution
To compensate for the drop in Russian imports transported by gas pipeline, Europe is using American LNG on a massive scale. But this alternative has a cost, structurally increasing the price of a megawatt hour since the start of the war in Ukraine. According to Rystad Energy, Russian gas still represents 14% of European consumption in 2024, compared to 12% the previous year.
Capital.com analysts warn that“a colder winter than expected or further delays in LNG projects” could push prices around 60 euros/MWh in the short term. Added to this is a risk premium linked to the Russian-Ukrainian escalation, accentuated by Biden’s green light for kyiv to use long-range ATACMS missiles on Russian territory.
Outlook under the Trump presidency
On a more distant horizon, the election of Donald Trump to the White House should boost the development of American LNG infrastructure and strengthen global supply, believe Rystad Energy experts. Paradoxically, a trade war between Washington and Beijing could benefit Europe. By disrupting Sino-American gas exchanges as in 2019, it would reduce competition on LNG made in the USA. At the same time, the EU could use its US gas imports as negotiating leverage to avoid punitive tariffs.
This combination of geopolitical, climatic and economic factors therefore maintains strong pressure on European gas prices. If the surge in prices seems contained for the moment, the coming months promise to be decisive for the energy security of the Old Continent, suspended from the vagaries of a capricious winter and an unpredictable war at the gates of Europe.
To compensate for the drop in Russian imports transported by gas pipeline, Europe is using American LNG on a massive scale. But this alternative has a cost, structurally increasing the price of a megawatt hour since the start of the war in Ukraine. According to Rystad Energy, Russian gas still represents 14% of European consumption in 2024, compared to 12% the previous year.
Capital.com analysts warn that“a colder winter than expected or further delays in LNG projects” could push prices around 60 euros/MWh in the short term. Added to this is a risk premium linked to the Russian-Ukrainian escalation, accentuated by Biden’s green light for kyiv to use long-range ATACMS missiles on Russian territory.
Outlook under the Trump presidency
On a more distant horizon, the election of Donald Trump to the White House should boost the development of American LNG infrastructure and strengthen global supply, believe Rystad Energy experts. Paradoxically, a trade war between Washington and Beijing could benefit Europe. By disrupting Sino-American gas exchanges as in 2019, it would reduce competition on LNG made in the USA. At the same time, the EU could use its imports of American gas as negotiating leverage to avoid punitive tariffs.
This combination of geopolitical, climatic and economic factors therefore maintains strong pressure on European gas prices. If the surge in prices seems contained for the moment, the coming months promise to be decisive for the energy security of the Old Continent, suspended from the vagaries of a capricious winter and an unpredictable war at the gates of Europe.
