Speaking to "Terevisioon" Thursday morning, Allikson, management board member of trading company Baltic Energy Partners, said: "A few weeks ago, it seemed that gas prices would remain similar to last year; and indeed they did."

"Then, a year ago, gas prices started dropping significantly, at around this time," Allikson went on.

"It can already be stated that January gas indices, which serve as a price basis for many gas buyers, are certainly higher than they were last year – currently the difference is running at around 20 percent," he added.

This year's higher prices contrast with the case last year when gas prices dropped significantly over the same period.

Allikson explained that the reason for this year's higher price levels is that natural gas prices have not fallen by as much as they did last year a year ago.

At present, on the Dutch Title Transfer Facility (TTF) gas exchange, where European gas prices get set, the price is €45, compared with around €36 a year ago.

While this affects private households, the main impacts are felt, and passed on to consumers in any case, with larger users such as gas-fueled power stations.

"This means that gas prices are somewhat higher; gas prices primarily affect those who buy it for heating or electricity generation purposes, particularly where fossil fuel-based electricity generation is required," Allikson said.

"In some places, gas is also naturally used for district heating," he added.

Allikson attributed the price rise primarily to the weather in Central and Western Europe, as there have of late been more days without wind or sunlight than usual for the time of year, thus increasing the reliance on gas rather than renewables, for electricity production.

"This resulted in gas consumption in November being more than twice as high as it was a year ago, plus December's gas usage in Europe has also been quite high," Allikson said.

"This means that with more natural gas being consumed, less remains in storage, which again drives up prices. The main concern is that if gas reserves become more depleted than usual after this winter, a greater volume of gas will need to be purchased – maintaining higher prices," the expert added.

"Gas consumption and prices are strongly linked to weather," he stressed; this winter so far has been mild but it is only mid-December, Allikson said.

"If the rest of the winter turns out mild as was the case last year, prices could drop in the same way. Weather is the primary factor."

Then comes the role of geopolitical tensions – though rising tensions in the Middle East have not yet significantly impacted European prices, Allikson said.

More relevant is the final end to the odd situation which has prevailed since early 2022 where Russian gas has continued to flow through Ukrainian pipelines, supplying western Europe.

"The bigger issue is the cessation of Russian gas exports to Europe via Ukraine and U.S. sanctions on Russia's Gazprombank, the main channel for gas purchase payments," Allikson noted.

Countries heavily dependent on Russian gas include landlocked EU nations such as Slovakia and Austria, which cannot host LNG vessels in docks of their own.

At the same time, while the U.S. is a net exporter of LNG, many Western European countries are still also purchasing Russian LNG even now.

"At the same time, it is of note that our region is relatively more well supplied with gas than is the rest of Europe, while there is no shortage of gas," Allikson added.

He further noted that the price of gas in Estonia is aligned with that on the Dutch TTF exchange, indicating no direct issues with gas supply.

"The fact that the price is the same is quite remarkable. So we don't have direct issues with gas supply," Allikson said.

Europe's gas reception capacity has significantly increased with more gas terminals and ample LNG globally, meaning gas will come to Europe if needed.

"This means there are no supply issues, only price concerns," he stated.

Allikson pointed out that the current gas price levels hardly serve to encourage consumption.

"The rise in gas consumption has happened during times when it has been used for electricity production due to a lack of wind."

"Otherwise, industry consumes less gas, the industrial sector in Europe is struggling, partly because gas prices are so high," Allikson added.

Allikson: Germany a major player in shaping electricity prices

Turning to electricity prices, Allikson noted that Germany plays a significant role in shaping these, Europe-wide.

He said: "The main focus should be on Germany, as its prices have a direct impact on our own. The high prices seen in recent days are thanks to Germany, as electricity flows there, and supplied by other regions, primarily the Nordics and partly from Southern Sweden – which has a cable connection with Lithuania."

"At times, electricity moves from Lithuania to Sweden and then via Sweden to Germany, again driving up our prices," Allikson added.

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