European gas: the price reached 50 euros per MWh, driven by the early cold and the ongoing war in Ukraine

This is a first in over a year. The price of European gas reached, then exceeded, the mark of 50 euros per megawatt hour on Tuesday, driven in particular by the expiration of a transit agreement between Ukraine and Russia and a cold winter.

After initially reaching this symbolic threshold before falling, the Dutch TTF futures contract, considered the European benchmark for natural gas, finally exceeded it a little later in the session. Around 3:35 p.m. GMT (4:35 p.m. in Paris), it gained almost 5% to 50.430 euros per megawatt hour (MWh), its highest level since October 2023.

According to figures published by GTSOU on its site, the volumes planned for Wednesday are zero m3 and deliveries will stop early in the morning.

Lower reserves

According to the Oxford Institute for Energy Studies, the interruption will result in an acceleration of the fall in European reserves and upward pressure on gas prices.

The cold temperatures since the end of October have also already favored the use of heating and the lack of sunshine and wind has led to a greater share of electricity being produced from natural gas.

Gas reserves are on average around 73% in European Union (EU) countries, according to the European Agregated Gas Storage Inventory (AGSI) platform, a rate well below the 86% observed for the same period in 2023 To deal with this, the threshold required for gas reserves in the European Union as of February 1 has been increased from 45% to 50%, the European Commission announced on Friday, November 29.

Financial dispute

In recent weeks, Hungary and Slovakia have complained about seeing the tap cut off on December 31, with no real credible immediate alternatives. Slovak Prime Minister Robert Fico, who remains close to Vladimir Putin and whose country is very dependent on Russian gas supplies, went to Moscow on December 22 to try to find a solution.

The Russian giant Gazprom also announced on Saturday that it would stop delivering gas to Moldova on January 1 following a financial dispute with this former Soviet republic which had just re-elected a pro-European president. Its commercial dispute with Gazprom predates the Russian invasion of Ukraine and concerns the Moldovagaz subsidiary, 50% owned by the Russian group.

Furthermore, the growing share of American LNG, to replace Russian gas transported by pipeline to Europe, has increased the costs per megawatt hour structurally since the start of the war in Ukraine.

Since the invasion of Ukraine in February 2022, the EU has reduced its exposure to Russian gas, but according to Rystad Energy analyst Christoph Halser, this resource still represents 14% of its total consumption in 2024, more than the 12% of last year.

“Colder than expected”

In this context, “a colder winter than expected or further delays in LNG projects” could in the short term lead to prices around 60 euros per megawatt hour, suggests Daniela Sabin Hathorn, analyst at Capital.com.

The price is also under pressure from a risk premium linked to the escalation of the war between Ukraine and Russia, particularly since Joe Biden’s decision to authorize kyiv to use American ATACMS missiles, with a range 300 km, on Russian soil. In the longer term, Donald Trump’s presidency in the United States should “accelerate the expansion of American LNG infrastructure” and “strengthen global supply”, explain Rystad Energy analysts.

Europe should be the major beneficiary of the Republican’s coming to power with regard to gas: The looming trade war between the United States and China could in fact “disrupt the flow of LNG between the two countries , as was the case in 2019,” explain the analysts.

This would mean less competition for US gas demand, while the EU could use its LNG purchases in trade negotiations with the US, to avoid punitive tariffs.