Gas prices in Europe are rising as stocks fall faster than expected, due to colder weather, reduced renewable energy production and the end of Russian gas transit through Ukraine. With stocks now below the pre-war seasonal average, Europe faces increasing pressure to secure supplies ahead of winter 2025-2026.
- At the beginning of January 2025,the price of European gas (TTF) has exceeded 50 EUR/MWh, marking an increase of +50% year-on-year and its highest level since October 2023.
- European natural gas stocks are 17% lower than their level a year ago.
- Without immediate risk of energy shortage in Europe, gas stocks are expected to end the year at a lower level than in 2023 and 2024, requiring significant purchases before the winter of 2025-2026.
Gas prices in Europe have returned to levels not seen in more than a year. The larger than expected drop in European stocks this winter, the cessation of Russian gas deliveries via Ukraine and the filling needs for 2025 contribute to the upward pressure.
Simon Lacoume, sector analyst at Coface.
Decrease in European gas stocks at the start of the cold season
The end of the transit of Russian gas through Ukraine since the 1is January1 helped push European gas prices to their highest level in 15 months. Since the start of the war in February 2022, Europe’s dependence on Russian gas has fallen from 45% to 18% in 2024 of its total imports.2. Europe has responded to falling pipeline energy imports with a combination of energy-saving measures, increased summer storage, accelerated deployment of renewable energy sources and increased imports of liquefied natural gas (LNG). .
Lower than expected temperatures in recent weeks have led to an increase in heating gas consumption across Europe. Frankfurt reached 878 heating degree days this winter, well above the 735 heating degree days in 2024. “Dunkelflaute” – a German term for weather events characterized by cold temperatures, little sunshine and light winds – has had a negative impact on wind and solar energy production in northwest Europe.
To compensate for this drop in renewable electricity production, Europe had to draw on its stocks. The latter are thus 17% lower than their level a year ago and slightly lower than their seasonal average before the Ukrainian war. While there is no significant risk of a supply shortage, gas inventories are expected to end at lower levels than the previous two winters, during which fill levels were between 55% and 60%. %.
Futures suggest prices will remain high in 2025/26
As Dutch TTF contract futures prices suggest, European gas prices are expected to remain around 50% higher than in 2024, and more than twice as high as pre-war levels in Ukraine3. Traders who had postponed their gas purchases, expecting a seasonal drop in prices, were forced to buy at high prices in recent months. Upcoming orders to replenish stocks could push these prices up further.
-In 2025, market dynamics will be driven by the role played by Asia and whether US LNG exports increase. To ensure its gas supplies to Asia, Europe will have to agree to higher prices. Although China’s lower growth outlook (4.3% y/y) suggests a slowdown in LNG demand and mild temperatures in Northeast Asia have helped reroute LNG cargoes to buyers in Europe, a recovery in demand could lead to further price increases.
At the same time, Europe’s dependence on American LNG is expected to increase. The United States was the main beneficiary of the decline in European imports of Russian gas, with the share of US gas imports increasing from 6% to 19% during the same period.4. New liquefaction capacities expected to come online in North America over the coming years are likely to displace the European source of supply, with the EU having at the same time set a non-binding target to stop all imports of Russian gas by 2027. With full production in North America not expected to be reached by the end of the year, gas markets in Europe, Asia and the United States are expected to remain tight in 2025 , now the rising price.
1 https://www.reuters.com/business/energy/russia-halts-gas-exports-europe-via-ukraine-2025-01-01/
2 https://france.representation.ec.europa.eu/informations/le-rapport-2024-sur-letat-de-lunion-de-lenergie-presente-les-progres-accomplis-par-lue-pour-garantir-2024-09-11_en
3 Compared to the average price between 2015 and 2019
4 2019-2023
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