The European energy market faces significant challenges as natural gas prices soar to their highest levels in a year. A combination of escalating tensions between Russia and Ukraine, Gazprom’s suspension of natural gas supplies to Austria, and colder-than-expected weather has placed substantial pressure on the market.
Industry representatives acknowledge that while sufficient gas supplies exist, the supply-demand balance remains fragile. Negative developments or geopolitical news could quickly trigger additional price surges.
On Thursday, Dutch TTF futures—a key European natural gas benchmark—rose to €48.8 per megawatt-hour (MWh) (equivalent to $538 per 1,000 cubic meters), a level last observed in November 2023. Since the end of the heating season on 31 March, prices have climbed by more than 150%.
The price surge accelerated on Wednesday after Ukraine targeted Russian territory using British-made Storm Shadow missiles. By the close of the trading day, prices had increased by 2.5%, reaching €46.8/MWh.
On the same day, the United States issued a warning based on intelligence reports, predicting a major air strike in the region. Following this warning, many Western countries evacuated their embassies in Kyiv.
Adding to the tensions, the Ukrainian Air Force reported that Russia test-fired an intercontinental ballistic missile (ICBM) capable of carrying nuclear payloads. This event aligns with speculation about changes in Russia’s nuclear doctrine and the US’s authorization for Ukraine to target Russian territory with long-range missiles.
While liquefied natural gas (LNG) demand in Asia remains low, traders are turning their focus to Europe to capitalize on surging prices, according to Bloomberg.
Despite the increased volatility, Gas Infrastructure Europe reports that gas storage facilities across Europe are 90% full. However, the heating season, combined with freezing temperatures in Northern Europe, has amplified concerns about market stability.
Torgrim Reitan, Equinor’s Chief Financial Officer, emphasized that the market’s fragile balance increases the influence of external factors on pricing dynamics.
The state of pipeline gas supplies from Russia is another major concern. On 16 November, Gazprom halted deliveries to Austria’s OMV, citing unresolved payment issues. The company is attempting to recover part of a €230 million arbitration judgment through this suspension.
Despite this, Gazprom continues to supply 42.4 million cubic meters of gas daily to Europe via Ukraine. However, OMV cannot access these supplies and must turn to other sources, such as Slovakia, to meet Austria’s energy needs. According to OMV officials, Austria’s energy requirements are fully covered by alternative suppliers.
Jon Treacy, editor of the investment newsletter Fuller Treacy Money, noted that although Austria maintains official neutrality, most of OMV’s customers are NATO members. Treacy added that Russia’s “long, cold winter” strategy aims to exert pressure on regions beyond Ukraine over the long term.
Market analysts warn that transit through Ukraine—a minor contributor to the European Union’s total gas imports—could be entirely cut off by January 2024. Such a development would further strain an already delicate market, potentially driving prices even higher.
