European Gas Prices Rise Following Suspension of Russian Gas Supply

From the first day of the new year, the supply of Russian natural gas via the Ukrainian gas pipeline was cut off, causing European gas prices to rise.

According to the London ICE exchange, on the 2nd (local time), the European benchmark Dutch TTF February contract closed at 50.27 euros per MWh (megawatt-hour), up 2.83% from the previous trading day. Euro News reported that prices briefly surged to 51 euros during the session, marking the highest level since October 2023.

European gas prices have risen for three consecutive trading days from the 30th of last month through this day. This is attributed to the expiration of the Russian natural gas transportation agreement via the Ukrainian gas pipeline on the 31st of last month. The suspension of Russian gas transportation affects about 5% of the European Union (EU)'s total gas supply.

Additionally, heating demand has increased as temperatures across Europe have sharply dropped in recent weeks. Euro News reported that Europe's gas reserves are being depleted at the fastest rate since 2021, with current storage facilities about 75% full. According to the industry group Gas Infrastructure Europe, gas reserves within the EU are estimated to have decreased by approximately 19% from the end of September to mid-December.

The European Commission, the EU's executive body, has repeatedly emphasized that there is no immediate energy crisis or risk of gas shortage. Following a special meeting of the advisory body 'Gas Coordination Group' (GCG) on the same day, the Commission stated in a press release that "there are no concerns regarding supply security." It added, "Gas supply has been secured through alternative routes (Germany, Italy) and the release of reserves," and explained, "Current storage facilities are about 72% full, which is somewhat higher than the average of 69% for this period."

However, the market is also discussing the possibility of additional price pressure, citing factors such as the shutdown of the Hammerfest liquefied natural gas (LNG) facility in Norway due to a compressor failure, which is expected to last until the 9th.

The Ukrainian gas pipeline cutoff directly affects countries such as Hungary and Slovakia. In these countries, the supply volume via the Ukrainian gas pipeline accounts for about 65% of their total demand in 2023. Currently, the EU Commission is discussing support measures for these countries by supplying gas from Greece, Turkey, and Romania through the 'Trans Balkan' gas pipeline connecting Turkey and Ukraine. Increasing imports of LNG from the United States, Norway, and Qatar is also a likely option to reduce dependence on Russian gas. However, LNG is more expensive than natural gas, which could further drive up prices.

Arne Roman Rasmussen, senior analyst at Global Risk Management, said, "There is an increasing risk that the EU's gas reserves will be insufficient after winter ends," and predicted, "It will be costly to replenish these reserves in the future."