Natural gas prices in Europe are approaching their highest level in several years. This comes as improvements in the energy situation in the Strait of Hormuz and reports of a halt in tensions between Russia and Ukraine have not prevented price increases. Future gas prices in the Netherlands based on TTF are trading at around 83 euros per megawatt-hour, the highest level since early 2023.
Gas reserves situation in Europe
Natural gas reserves in Europe continue to face lower levels compared to the 15-year average. While reserves are 73% full, it was expected that this figure would not reach 70% before the start of winter. However, analysts believe that Europe is injecting gas into its reserves at a faster rate than expected. In September, the amount of gas injected into reserves was the strongest month of 2022.
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Factors affecting natural gas prices
City analyst Maggie Shuting Lin pointed to three main factors that are facilitating the balance of natural gas in Europe ahead of winter industrial demand: reduced industrial gas demand, warm weather, and the sudden shift of Ukraine from importer to net exporter. Industrial gas demand in September dropped nearly 8% compared to last year, and this figure is about 30% lower than pre-2022 levels.
In addition, Ukraine has unexpectedly helped Europe in gas supply and is expected to export about 1 billion cubic meters of gas to Europe this winter. This change could lead to a reduction of 4.5 billion cubic meters in Europe's gas balance compared to last year.
Despite this, Maggie Shuting Lin remains pessimistic about natural gas prices in the European Union and predicts that prices will drop to 56 euros in the fourth quarter. She believes that the destruction of industrial demand could facilitate a natural gas shortage, while ongoing disruptions in Qatar's liquefied gas exports continue.
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