EU gas price hits highest since October 2023 at start of trading

The wholesale gas price for the European market rose to as much as 50.85 euros (1280 Kč) per megawatt-hour (MWh) this morning, its highest level since October 2023. A ten-year agreement for Russian gas supplies to Europe via Ukraine ended on Tuesday, while temperatures also fell, boosting demand for gas for heating, Reuters reported.

The price later gave up some of its gains, and at around 10:40 CET, gas for the European market at the Dutch Title Transfer Facility (TTF) virtual trading hub was trading at more than 49 euros per MWh for delivery in February. This was up 0.2 percent from the previous day. The TTF price is the benchmark for prices in Europe.

International Energy Agency (IEA) analyst Greg Molnar said on LinkedIn that the halt to Russian gas supplies via Ukraine does not pose an immediate risk to the EU's security of supply, but makes the market situation more difficult and increases the EU's need for liquefied natural gas (LNG) imports, as the EU must replace the loss of around 15 billion cubic metres of gas transported by pipeline. This will affect LNG prices.

Russian gas continued to flow to Europe via Ukraine despite the three-year war. However, Russian gas company Gazprom said it had halted the supplies from the start of the new year because Ukraine refused to renew the transit agreement. „The market may not have fully priced this in yet, as hopes remained for some form of continuation,“ said LSEG analyst Ulrich Weber.

„Average temperatures in northwestern Europe are on a downward trajectory, with Saturday expected to be the coldest day, at an average of zero degrees Celsius,“ Weber added, noting that lower temperatures would push gas prices higher.

Bloomberg noted that the end of Russian natural gas flows to the EU via Ukraine is likely to intensify competition with Asia for supplies and raise the prices of alternative gas sources. Ukrainian President Volodymyr Zelenskyy said in a post on Telegram on Wednesday that he hoped increased gas supplies to Europe from the US and other producers would ensure more favourable prices.

Russia's invasion of Ukraine in February 2022 triggered an energy crisis in Europe, causing regional gas prices and international LNG prices to surge.

„This will add further tension to the LNG market,“ Haitong International Securities chief executive Scott Darling told Bloomberg.

„We think this year, and possibly next year, will be tight. Supply, particularly of LNG, is limited, and we see greater upside risk for spot LNG prices this year and next. Because Russian gas flows via Ukraine have stopped, Europe will have to replace supplies equivalent to around five percent of its gas and will now have to rely more on storage, whose levels have fallen below the average for this time of year.

Prices rose in anticipation of the halt to gas supplies, and the European benchmark gas price increased by more than 50 percent last year. LNG is usually more expensive, and some countries, such as Japan and Korea, depend heavily on it.