Unfreezing prices: why Europe is again threatened by gas shortages
Gas prices in Europe are growing rapidly, having exceeded the $500 per 1,000 cu.m. mark. The reasons for this are the interruption of gas transit through Ukraine and a relatively cold winter by the standards of recent years. All this may lead to a threat of shortages next winter and a long-term rise in prices for blue fuel. In turn, this situation forces Europeans to postpone their rejection of Russian gas to a more distant future. Details about the difficulties on the European market are in the Izvestia article.
Barely met the targets
In 2022, when gas prices reached record highs amid the SWO in Ukraine and restrictions on the purchase of Russian fuel, the 27 EU member states agreed on mandatory targets for filling underground gas storage facilities (UGS). They were intended to protect the region from unexpected spikes in demand or supply disruptions during the coldest periods.
Two and a half years later, Europe has struggled to meet UGS filling targets for February, with some countries failing to achieve even that. Among the region's biggest energy consumers, France filled its UGS at 35.5% as of Feb. 1, against a target of 41% set by the European Commission, Bloomberg reported. To be fair, there is a caveat that a shortfall of 5pc or less for energy security will also do.
Some EU members calculate a separate, lower UGS filling target that takes into account certain exceptions - based on domestic gas consumption or exports to other countries, although not all publish this data. For example, for the Netherlands, the threshold as of Feb. 1 was 39% against the European Commission's target of 47%, according to the country's data. And storage facilities were 37.1% full. The Czech Republic, Hungary, Latvia, Slovakia, Slovakia and Austria are also in this category. The latter calculates its target at 24.9%, compared with the 64% published by the European Commission, according to the Austrian energy market regulator.
EU storage was about 53% full earlier this month. That's the lowest result for this time of year since 2022. The European Commission's target (50%) is being met, but there is little margin of safety.
Above $500
All of this is expectedly fueling prices. This winter, according to the idea, the EU should survive without excesses, but it is important what will happen next winter. Now traders are keeping a close eye on storage levels, the market could tighten this summer as Europe needs more gas to replenish dwindling reserves. Meeting that target before next winter is particularly difficult, especially as summer gas contracts are trading higher than those for the next heating season.
Both short-term and summer futures have recently jumped sharply. Exchange-traded gas prices in Europe exceeded $570 per thousand cubic meters for the first time since October 31, 2023. The summer premium, which makes stockpiling unprofitable, even increased after Germany's gas market manager revealed last month proposals for subsidies to encourage gas injection into storage.
There are plenty of reasons for the price rise. First is the cessation of Russian gas transit through Ukraine. Now the EU (and, incidentally, Russia) is trying to find some solution: from increasing supplies via Turkish Stream to exporting Russian gas under the guise of Azerbaijani gas. Radically increasing supplies through LNG is unlikely to succeed. All these talks have had no effect so far.
Secondly, winter in the EU turned out to be colder than in the last two years. For example, in Amsterdam January was slightly below normal, but in 2023 and 2024 it was above normal. Third, in the moment, gas prices followed oil prices, which rose amid US President Donald Trump's threats to impose duties against several major countries around the world.
What happens next? In the long term, it is possible that gas storage facilities will be emptied by summer, and given the problems with Russian imports, it is possible that their filling will be disrupted next fall. This is exactly the scenario of the events that unfolded in 2022. At that time, it led to a prohibitive rise in prices, which broke all records.
According to Maria Belova, Research Director at Implementsa, the EU will not experience a shortage of natural gas until the end of the heating season, as the level of natural gas reserves in UGS facilities is comfortable for this time of year, plus the current price growth in the region will attract additional volumes of LNG.
- As for winter 2025/26, it will be difficult to fill UGS facilities without Ukrainian transit. This may affect gas prices, which traditionally decline starting from April. In other words, this year in the summer period quotations may stay above $500 per thousand cubic meters, - comments the interlocutor.
Evgeny Mironyuk, stock market expert at BKS Investment World, believes that the probability of continuing the gas price rally in Europe is average:
- The technical picture suggests consolidation of quotations. The problem may aggravate at the end of February, but then consumption will decrease. Further determining factors will be weather conditions in Asia during the summer season (a repeat of the abnormal heat wave of 2024 is possible), decisions on further restrictions on Russian gas, trade barriers between the EU and the US, as well as the US and other countries.
According to him, the latter may force the Europeans to limit purchases of US gas as well.
- In this case, the introduction of a ban on LNG supplies from Russia may once again be postponed. The sanctions imposed on Russian LNG in June 2024 only concerned re-export through the territory of the European Union to third countries, " says Evgeny Mironyuk.
Refusal from Russian gas will be delayed
Maria Belova, in turn, notes that the issue of including an embargo on Russian LNG imports was raised during the discussion of the next package of sanctions, but in the end it was not included there.
- However, we are not clear about the expected terms of refusal from our LNG. At the same time, regardless of the sanctions packages, no one has removed the EU's goal of abandoning Russian gas in 2027, and by that time additional volumes of American and Qatari LNG will enter the market, which will provide Europeans with an alternative. Therefore, in my opinion, the issue of banning imports of Russian LNG is still on the EU's agenda. However, a possible trade war with the U.S. may make adjustments to it," the speaker pointed out.
As noted by Finam analyst Sergey Kaufman, a ban on imports of pipeline gas is not seen in almost any scenario, as through the only remaining route in the form of one of the strings of "Turkish Stream" gas is received by Hungary, which can veto such a ban.
- If political realities do not change, the EU's rejection of Russian LNG is a matter of time," says Kaufman. - In the base case scenario, we believe that the complete rejection may take place in a year and a half at the earliest, as the combination of rapid gas consumption from UGS and the limited supply on the LNG market will not allow to do it sooner. We also note that higher gas prices are an important argument for the prime ministers of Hungary and Slovakia, who are trying to lobby for the restoration of transit through Ukraine.
Переведено сервисом «Яндекс Переводчик»
