Europe will struggle with high gas prices for another year in the face of the energy crisis. The 150% increase in benchmark gas prices this year, caused by supply disruptions and reduced storage levels, has raised serious concerns on the continent.
Gas Storage Situation
Analysts have predicted that gas storage levels in Europe will reach 75% to 78% by November 1. This is 10% lower than the average storage levels of the past five years and has started from a lower level. According to Yuri Unishkiv, an analyst at the London Stock Exchange Group (LSEG), even with mild weather in winter, storage levels in Northwestern Europe will decrease to about 20% by early April.
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Impact of the Energy Crisis
Moataz Al-Talabi, a senior energy economist at ABN Amro, has also pointed to operational shortages in gas storage and emphasized that European countries are heavily reliant on supply through pipelines and LNG to meet winter demand. Storage facilities typically supply 25% to 30% of the gas consumed by the European Union in winter, so any disruption in supply could lead to further price increases.
ABN Amro has predicted that in the event of severe cold weather, storage levels could drop to 10% to 15%, which, according to Al-Talabi, will be "very critical and challenging" for filling storage in the upcoming season. This situation recalls the energy crisis of 2022 when the cutoff of Russian gas through pipelines following the onset of conflicts between Moscow and Kyiv drove European benchmark prices to over 350 euros per megawatt-hour.
Although most energy analysts do not predict a return to such high levels, the possibility of prices rising above 100 euros per megawatt-hour, which is 25% higher than current levels, seems likely. It is also expected that consumers will feel the full impact of wholesale gas price increases by 2027.
According to published information, gas tariffs for new customers have increased by 55% this year, and current customers are expected to face price increases upon contract expiration. Meanwhile, the Cornwall Insight consulting firm predicts that the cap on household energy bills in the UK, which reached its highest level in three years in October, will increase by another 16% in January.
Anna Maria Jaller-Makarovich from the Institute for Energy Economics and Financial Analysis (IEEFA) referred to the current crisis and expressed her concern that we still do not understand the true dimensions of this crisis. Meanwhile, the head of gas and LNG analysis at the Commodity Information Services (ICIS) believes that Middle Eastern conflicts may be resolved during the winter, but markets have not yet fully accounted for the demand for injecting gas into storage facilities in Europe in their pricing.
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