The result is another season of high prices, not only for gas but also for electricity, a darker future for energy-intensive companies in the region. Hardly a week goes by without a major manufacturing sector announcing factory closures, job losses and billion-euro value cuts. Households, too, will feel hit; retail gas and electricity prices will rise, fueling inflation and causing another headache for the European Central Bank and the Bank of England.
European wholesale gas prices rose this week to €47 ($50) per megawatt-hour, doubling February’s low point. While current prices are a fraction of the all-time high set at more than €300 per MWh during the worst energy crisis in mid-2022, they remain around 130% above the 2010-2020 average.
BloombergThe challenge is encapsulated by two prices. The first is the cost of gas in Europe, measured by the Title Transfer Facility benchmark. On Wednesday, it was about $14 per million British thermal units. The second is the same gas cost, but in the US, measured by the Henry Hub benchmark. On Wednesday, it was at $3 per mBtu. Now, put yourself in the position of the board of directors of a global energy-intensive manufacturing company. How long will it take you to decide that Europe is not a good location for future investment?
After Russia cut gas supplies to Europe in 2021, the region responded by saving energy, storing gas in the summer, launching renewable fuels and buying large amounts of liquefied natural gas from abroad. These measures are all designed to reduce the region’s dependence on the Kremlin and offset the decline in domestic gas production, particularly in the Netherlands where a major gas field was closed for political reasons, and in the UK when the government increased taxes on North Sea output. .
European policy makers present the combination of policies as a masterstroke of strategic planning. He said he had succeeded. There are, of course, many good policies. But equally there is a lot of luck. And Russian gas continues to flow to Europe, just in a different way.
BloombergWhat luck? First, for two consecutive winters, Europe enjoyed a warm, wet, and windy season – perfect for reducing heating demand and generating wind, solar, and hydro power. Second, the region faces limited competition for LNG shipments from Asia as China and others struggle to recover from the impact of the Covid-19 pandemic. Thanks to both, Europe can build huge stockpiles before the winter. And since the winter is not as cold as usual, there is an important reserve when spring comes. His fortune has run out. The weather has become cold, calm and dry. Germany has a word for it: dunkelflute – a period of windless and cloudy weather that leads to renewable production. Europe experienced a long dunkelflute in early November, and more likely next week. And Asia is importing more LNG, driving up prices. In turn, Europe has bought five times less LNG than in the last two years. The result? Europe is already heavily in gas storage. During the first two weeks of November, the withdrawal of gas from inventories was the second largest for that period in data since 2010. On current trends, November storage levels will see the largest decline since 2016 for the month, doubling the fall seen in 2022. and 2023.
Even if the weather remains cold, Europe will not be short of physical gas. Thanks to the significant remainder from 2023-2024, the current summer season is in full supply, measuring around 95% of total capacity. But it is unlikely that the 2024-2025 winter will end with the highest storage levels after the previous two winters.
BloombergIn the last season, the season ended with storage at 60% full; the year before, the figure was 55%. It is very early days, but in the current trend, the typical season will leave the inventory in the spring of 2025 at just under 50%. Cold winters will reduce it to 35%-45%. Whatever the outcome, one thing is clear: Europe will have to buy a lot of gas next spring and summer to rebuild its buffers before the winter of 2025-2026.
This is why European gas prices from April 2025 to October 2025, usually the shoulder demand season that sees gas cheaper, are trading at unusual levels compared to the period November 2025 to March 2026. For consumers, the trend in the wholesale market means higher retail prices .
And then, gaslighting. Europe has deluded itself into thinking that it has largely solved its Russian gas reliance problem. Never did that. Indeed, they reduced their dependence on Russian pipeline gas, although not completely. But it also increased Russian LNG purchases. After Norway and the US, Russia remains Europe’s third largest source of gas imports, according to official data.
European Commission President Ursula von der Leyen has floated the idea of ​​replacing Russian LNG with American LNG to please incoming President Donald Trump. More imaginary. The idea is pointless. First of all, US production has been largely committed. If Europe wants more US LNG, it will have to pay higher prices than Asia to divert its cargo. European utilities, under pressure to meet green targets imposed by Brussels and national governments, are unlikely to commit to the 15- to 20-year contracts that American LNG producers want. The comment sounds like a desperate attempt to pretend there is a policy.
If Brussels is serious about replacing Russian gas, why hasn’t it banned it? Politically and economically, it makes sense to continue with the status quo. But moral? It makes no sense to buy Russian gas at the same time as donating missiles to Ukraine. If the European Commission thinks it needs more American gas, why not use its diplomatic muscle to complain about the White House’s pause in approving new LNG terminals?
And if Europe remains short of gas, so it needs a deal with Trump for more American LNG, why doesn’t Brussels push for incentives to increase domestic gas production, including lower taxes? Europe needs to answer that question – soon.
