Natural gas prices in Europe on Monday, October 26, for the first time since 2022 exceeded 97 euros per megawatt-hour. The price increase is occurring against the backdrop of unusually low inventories in European underground storage facilities, forecasts of cold weather, and disruptions in liquefied gas supplies due to the conflict in the Middle East.

According to Bloomberg, gas futures on the Dutch TTF hub, which is the main price benchmark for the European market, added up to 3.5% during morning trading. As of 08:50 Amsterdam time, the nearest contract cost 96.88 euros per MWh, which is 3.2% higher than the previous session.

European gas continued to rise after last week's increase. Market participants expect that in the coming days, a drop in temperature will increase heating demand, while the ability to quickly replenish inventories remains limited.

Europe enters winter with low gas reserves

According to Gas Infrastructure Europe (GIE), as of October 25, the EU's underground gas storage facilities were 74.62% full. This is about 15 percentage points below the average for the corresponding period in recent years.

The situation is particularly tense in Germany, where storage occupancy is only 61.48%. In the Netherlands, this figure reaches 65.24%.

Such low inventories make the European market more sensitive to cold weather and any supply disruptions. If the heating season is accompanied by prolonged frosts, energy companies will have to use storage more actively or purchase additional volumes of gas at current market prices.

The problem is compounded by the situation on the global liquefied natural gas (LNG) market. The war in the Middle East has disrupted the usual supply routes from the Persian Gulf, and the prospects for a rapid restoration of stable exports remain uncertain.

In October, LNG inflows to Europe are lagging behind last year's levels, although imports usually increase before winter. Under these conditions, European buyers may face increased competition from Asian countries for available gas supplies.

Expensive gas creates additional costs for industry

The rising cost of gas is already affecting the European electricity market. In France, electricity futures for next month delivery exceeded 200 euros per MWh for the first time since January 2023.

For European businesses, prolonged energy price increases mean higher production costs. This primarily affects chemical, metallurgical, glass and other energy-intensive enterprises that use gas as fuel or industrial raw material.

However, analysts polled by The Wall Street Journal do not consider a repeat of the 2022 energy crisis inevitable. Compared with that period, Europe has increased LNG receiving capacity, reduced industrial gas consumption and expanded the use of alternative electricity sources.

But even without a physical shortage, high wholesale prices could increase inflationary pressure and worsen the competitiveness of European manufacturers.

For Ukraine, the rise in gas prices on European hubs also creates risks of increased costs for imports in the winter. At the same time, changes in exchange prices do not automatically mean a revision of regulated tariffs for households.

Further price dynamics will depend primarily on temperatures in Europe, the availability of new LNG supplies and the situation with energy transportation through the Middle East.

Based on materials from: Bloomberg, Gas Infrastructure Europe (data on gas storage occupancy), The Wall Street Journal