The price of natural gas has risen steadily, albeit with small fluctuations, since February, when the price per megawatt-hour (MWh) on the TTF gas exchange stood at €23. The summer's lowest price was recorded on July 9, at just over €30 per MWh. In early August, the price briefly exceeded €40 before dropping below €34 in mid-September, after which it resumed its upward trend. Over the past month, the price has increased from €38 to €48.5 per MWh.

Kristofer Vähi, portfolio management lead at Eesti Gaas, identified weather conditions as the main driver behind the price hike, compounded by uncertainties surrounding Russian gas supplies. "Colder weather arrived in Europe, and withdrawals from gas storage facilities have been faster than expected. Storage levels are approximately 10 percent lower than they were at the same time last year. At the same time, LNG imports to Europe are lower than last year, and there is uncertainty about the continuation of Russian gas flows," Vähi said.

Marko Allikson, partner at Baltic Energy Partners, highlighted similar factors, adding that lower renewable energy production has also contributed to the reduced storage levels. "Gas demand in Europe has been roughly the same as last year overall, but in November, gas consumption was 13 percent higher, primarily due to lower renewable energy production, calm wind conditions and cold spells. European storage levels have fallen to 85 percent, which is 10 percentage points lower than at this time last year, and winter is still ahead," Allikson noted.

Allikson also pointed out that market conditions discourage replenishing storage for the upcoming winter due to a phenomenon known as contango, where futures prices for subsequent months are lower than current prices. This makes it more economical to delay purchases for future winters instead of filling storage now.

Regarding Russian gas transit, Allikson said there is still a possibility of agreements being reached between Azeri and European buyers to maintain supplies via Ukraine. Historically, such agreements have often been made at the last moment. However, recent U.S. sanctions on Gazprombank, a key payment intermediary, could hinder gas purchases not only via Ukraine but also through the TurkStream pipeline between Russia and Turkey. "Gas traders are actively seeking solutions to maintain flows under the new U.S. sanctions, which also affect Turkey, where about 40 percent of gas purchases come from Russia," Allikson said.

Despite reduced storage levels, Allikson stressed that Europe's supply security remains intact. "Storage levels are above the long-term average, and there are no supply security issues. However, prices at the start of winter remain sensitive to changes in temperature and wind forecasts," he added.

Vähi noted that TTF futures for the first quarter of next year are currently trading at €47, meaning there is little difference from the current price. Gas prices in Europe will only stabilize when natural gas supply increases. "And Europe no longer needs to outbid other buyers to secure necessary imports. Several new terminals and export projects are set to be completed in Europe next year. However, U.S. liquefaction terminal projects have been delayed, meaning the anticipated increase in LNG supply on the global market will likely not materialize significantly until 2025," Vähi said.

--

Follow ERR News on Facebook and Twitter and never miss an update!