Written by Julius Specht
As winter temperatures continue to plummet, Europe's energy crisis shows no signs of letting up. Natural gas prices remain stubbornly high, prompting concerns over a possible shortage of supply and an escalation in prices. Despite recent efforts to alleviate the energy crisis, including increased gas production and shipments from overseas, futures contracts indicate that the situation in Europe may not improve anytime soon.
The TTF price, Europe’s benchmark, slipped on Monday to the lowest level since September 2021, and Europe looks confident that there will not be gas shortages this winter.
However, the race to ensure supply for next winter hasn’t even started in earnest yet. Prices are set to hold higher than before the Russian invasion of Ukraine through the summer as Europe will face stiffer competition from Asia for liquefied natural gas (LNG) supply. TTF futures for December are priced above €60 per megawatt-hour, notably higher than the €54 per megawatt-hour for March.
Last year, Asia – including China – saw lukewarm demand amid high spot prices and a slowdown in the Chinese economy. With China’s reopening, however, demand for gas and LNG is set to rebound, increasing the competition between Asia and Europe for spot supply, analysts say. Moreover, the weather in Europe has been milder than usual for prolonged periods so far this winter, allowing for less gas consumption for heating and power generation. It is far from certain that Europe, and the northern hemisphere as a whole, will see mild temperatures next winter, too. Governments and regulators in the EU say that while a major gas shortage crisis has been averted for this winter, next winter could be more difficult.
“Prices seem likely to remain structurally higher than they were before the Russian invasion,” Henning Gloystein, director for energy, climate and resources at Eurasia Group, said in a recent note carried by Bloomberg.
Europe continues to add new LNG import capacity, especially in Germany and the Netherlands, but if global supply is tighter, prices will spike again. Europe’s gas prices were up by around 3% at $58 (54 euros) per megawatt-hour (MWh) around noon in Amsterdam on Wednesday. Prices have held in the $53-64 (50-60 euros) per MWh for weeks amid higher-than-seasonal gas inventories, mild weather, and steady inflows of LNG.
The contracts for natural gas indicate that prices will remain elevated for months, as buyers are willing to pay a premium to lock in supplies during the cold winter months. The contracts suggest that prices will remain high through at least April, well into the spring season.
The high cost of natural gas has led to increased reliance on other energy sources, such as coal and oil, which are also experiencing high demand and price increases. These alternative energy sources are also environmentally unfriendly, and their use could result in an increase in carbon emissions, causing concern for environmental activists and policymakers alike.
The crisis in Europe has highlighted the need for energy diversification and the development of alternative, sustainable energy sources. Governments are under pressure to ramp up investment in renewable energy, such as wind and solar power, to reduce reliance on fossil fuels and mitigate the risks associated with supply chain disruptions and price volatility.
As the energy crisis continues to unfold, it's uncertain what measures will be taken to address the issue. The high natural gas prices have already had a significant impact on businesses and households across the continent, with many struggling to afford the cost of heating their homes and running their operations. It remains to be seen whether policymakers will take decisive action to address the crisis or whether it will persist for the foreseeable future.
In the meantime, consumers and businesses must brace themselves for the high prices and potential supply disruptions that may lie ahead. The natural gas futures contracts indicate that the energy crisis in Europe is far from over and that solutions to the issue may require significant investment and cooperation from governments and the private sector alike.
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