Prices surged following Ukraine’s recent refusal to extend a five-year gas transit agreement with Moscow
European gas prices have surged to their highest level since October 2023, driven by supply disruptions following Ukraine’s recent refusal to extend a gas transit agreement with Moscow. Colder weather forecasts have been exacerbating concerns in an already tight energy market.
Kiev decided at the end of 2024 to terminate its five-year gas transit contract with Russian energy giant Gazprom, cutting off Russian pipeline gas supplies to Hungary, Romania, Poland, Slovakia, Austria, Italy, and Moldova. Vladimir Zelensky has claimed the contract’s termination was aimed at eliminating Moscow’s energy revenues. However, Slovakia and Hungary have accused him of deliberately triggering an energy crisis for political gain.
The benchmark front-month contract at the Dutch TTF gas hub climbed more than 4% on Friday, surpassing $590 per thousand cubic meters, or €53.62 per megawatt-hour, extending the previous days’ rally.
Data shows that EU gas storage levels have dwindled to approximately 55%, significantly lower than the 72% recorded at the same time last year and below the five-year average of 62%.
Analysts anticipate a further increase in heating demand amid forecasts that temperatures will drop further in the coming days.
The EU has faced a dramatic reduction in Russian gas imports, which previously accounted for 40% of the bloc’s total supply, due to Ukraine-related sanctions and the 2022 sabotage of the Nord Stream pipelines.
To compensate, the bloc has increased its reliance on imports of more expensive Liquefied Natural Gas (LNG) imports from the US and Norway, driving up overall energy costs. Recent outages at Norway’s Gullfaks, Troll, and Asgard fields have further constrained energy supplies to continental Europe.
Despite ongoing efforts to reduce dependence on Russian energy, EU member states have been importing record volumes of Russian LNG. In the first half of 2024, Russia emerged as the EU’s second-largest LNG supplier, trailing only the US, according to data from the Institute of Energy Economics and Financial Analysis.
US President Donald Trump previously urged Brussels to purchase more American LNG, threatening tariffs if they did not comply.
The EU is set to become increasingly reliant on LNG amid growing geopolitical tensions, as current levels are “insufficient” for the European market “to balance and rebuild inventories for the next winter,” analysts at DNB Markets have warned, according to The MarketWatch.
EU officials are now discussing the possibility of resuming Russian gas imports as part of a potential agreement resolving the Ukraine conflict, the Financial Times reported this week. However, it remains wary that such a move could undermine ongoing efforts to diversify energy sources and reduce dependence on Russian supplies. Moscow has also expressed skepticism regarding the feasibility of the reported plan.
