Europe is tightening its gas reserves

The gas market is and remains restless. After the TTF broke through €50 per MWh a week and a half ago, the highest price in over a year, the market dropped back a bit last week to even just below €45 per MWh. However, the futures market started the week with an increase. Last year around this time, the TTF was fluctuating around €30. We are now a third above that.

The fact that gas is a lot more expensive has everything to do with availability. European gas storages are 66% full, according to data from Gie Agsi, the umbrella organisation of the European gas sector. The five-year average for the week is almost 75% and last year European gas storages were still more than 80% full. In the Netherlands, the filling level dropped just below 50% last weekend, according to figures from Gasunie. So the gas supply has been pulled a bit harder than was the case last year around this time.

The relatively high demand for gas in the EU coincides with a cold spell in the US. According to meteorologists, this cold weather will probably last until the end of January. On the American futures market, natural gas passed $4 per MMBtu (around €13 per MWh) during trading yesterday. LNG is expensive on the world market and American producers have an interest in keeping production going. The new LNG plant Plaquemines in Louisiana, which has now been in operation for a month, is helping to push American LNG production to a record high. Due to high demand for gas on the domestic market for heating, LNG production is reaching its limits.

For Europe, the limited availability of LNG and natural gas is not the biggest problem in the short term, according to various analysts. A very long cold period would have to come before we could not survive until next spring with the current stock. Experts are more concerned about what will happen next autumn and winter. Transport via gas pipelines through Ukraine, which still flowed Russian gas to us, has been stopped since this year. The contract has expired and a new contract is unlikely given the war in Ukraine. In order to have sufficient gas for next winter, Europe must once again look for an alternative to the relatively cheap Russian gas.  

Duration
With LNG there is an alternative, but it is relatively expensive. Traditionally, it was mainly Asian countries that imported LNG. European buyers will therefore have to compete with those countries and offer more to the point that large LNG importers such as India, Bangladesh and Egypt drop out. The resulting higher energy prices are not a blessing for the already ailing European manufacturing industry.

The problem of high energy costs is not limited to gas. Europe is also expensive with electricity, according to several top business people united in the interest group Eurelectric. Electricity in Europe is two to three times more expensive than in the US and around 23% of the electricity price paid by end users in 2023 is tax, according to the European think tank Bruegel. "If we are serious about competitiveness, about electrification and about decarbonizing the industry, I think we have to take action," Leonhard Birnbaum, CEO of Eon and chairman of Eurelectric, recently told Reuters.

On the spot market, electricity was relatively expensive last week. There was no dip in the price during the weekend, as is often the case. A lack of wind combined with little sun meant that there was relatively little supply of electricity from these green sources. As a result, the expensive gas and coal-fired power stations had to step in.