The natural gas traders in Europe have begun noticing early signs of the possibilities of a surge in demand for gas this winter, which raises the level of market risks. This comes as the prices of gas in the Netherlands and the UK saw a surge on Monday morning, following reports of gas imports from Egypt coming to a halt.
By 0945 GMT, the Dutch November benchmark natural gas contract had risen 2.50 euros to 53.40 euros per megawatt hour. Contracts for December climbed by 2.45 euros to 56.15 euros. In the United Kingdom, the November contract increased from 6.50 pence to 133 pence per thermal unit. “I think the reason is because of the news coming from Egypt,” one of the dealers explained. Egypt said over the weekend that its natural gas imports have dropped to zero from 800 million cubic feet per day.
Egypt was exporting excess quantities of liquefied natural gas, but that ended due to a reduction in supplies and an increase in local consumption. Although the quantities of liquefied natural gas shipped from Egypt to Europe are not typically large, the move shows the growing geopolitical dangers, according to the dealer.
Europe needs liquefied gas shipments from any available source to serve its markets after Russia halted most gas flows through pipelines due to the ongoing conflict in Ukraine. There have also been regional supply interruptions, with flows from Norway, the region’s main supplier, dropping during the weekend due to a compressor failure at the Nyhamna Gas Plant.
By many measurements, the European Union has achieved its goal of reducing its reliance on Russian natural gas, avoiding the fuel shortages and blackouts that many feared during last winter’s energy crisis.
The 27-nation EU, which is largely reliant on gas imports, used to depend on Russia for around half of those inflows. However, in the 20 months since Moscow launched its full-scale invasion of Ukraine, it has increased imports of piped and liquefied natural gas (LNG), accelerated the approval and construction of LNG infrastructure, and urged its residents to reduce their energy use.
Longer-term trends indicate that Europe’s gas requirements are gradually dropping. Last month, the International Energy Agency (IEA) predicted that demand for the fuel in “mature markets” — Europe, North America, and portions of Asia — would shrink 1% per year until the end of 2026 as countries expanded their renewable energy sectors and got more energy-efficient.
Gas shortages are unlikely in Europe this winter, but the fuel’s price remains a concern. Prices in regional commodity markets have risen by 28% in the last month. Even before the rise, they were nearly double their seasonal norm for the time of year.
This instability could lead to greater price increases in Europe, reflecting the reality that Europe now has fewer options for obtaining extra gas if necessary. According to Moody’s, it may require more fuel if the next winter is significantly colder than expected, or if Russia — which still sends gas via pipes to a handful of European nations, including Hungary and Austria — cuts off all piped exports.
Thus, it’s clear that there are multiple factors governing the gas price trend in Europe for the time being. On the one hand, there’s a raging war in Ukraine, with its subsequent political stance on the part of Europe which made the Russian gas far less available and accessible than in the pre-war period. Yet, Egypt’s also facing some issues with the gas supplies due to multiple reasons—in the end, becoming a contributing factor to the crisis that Europe is bending over backwards to resolve. The bottom line: Europe is squashed in a corner, or, to be clearer, caught between the devil and the deep blue sea.
