Gas was given: fuel prices in Europe may stay at around $1,000 for a long time
Gas prices in Europe, which reached four-digit values during trading on September 10, exceeding $1,000 per 1,000 cubic meters, may gain a foothold at this level for a long time, experts interviewed by Izvestia believe. Amid the cold snap and the continuing threat of supply disruptions through the Strait of Hormuz, traders are seeking to replenish fuel supplies before winter. Currently, gas storage facilities in the EU are filled by about 67% against 79.48% a year earlier, according to data from Gas Infrastructure Europe. The high cost of blue fuel will also push up electricity prices, experts add.
Why have gas prices skyrocketed
The October gas futures price according to the TTF index, the main price benchmark of the European market, which is formed on the trading floor in the Netherlands, exceeded $1,000 per 1,000 cubic meters, or €82.8 per MWh, on September 10. The last time such values were recorded on the stock exchange was at the end of 2022.
In the near future, gas prices are likely to remain above $1,000 per 1,000 cubic meters, said Dmitry Scriabin, portfolio manager at Alfa Capital Management Company. According to him, the further dynamics of fuel costs depends almost entirely on the geopolitical situation. Given its development, it is hardly worth counting on a rapid normalization of prices.
If the free movement of tankers through the Strait of Hormuz does not resume by November, the cost of gas on European stock exchanges may permanently consolidate above $900 per 1,000 cubic meters, agrees Alexei Belogoryev, Director of Research and Development at the Institute of Energy and Finance.
Kirill Rodionov gives a more restrained forecast. In his opinion, in the fourth quarter, the cost of gas in Europe will not reach $1,000 per 1,000 cubic meters, as demand for fuel in the EU is gradually decreasing. According to the Bruegel research organization, in the first half of 2022-2025, the average demand for gas was 178 billion cubic meters, while in 2026 it was already 166 billion cubic meters.
The rise in gas prices in Europe is linked to the escalation of the conflict in the Middle East and increased concerns about supplies. A new round of confrontation between Washington and Tehran occurred at the end of August, when the sides exchanged attacks on ships and military installations. On September 7, the Secretary of the Supreme National Security Council of Iran, Major General Mohsen Rezai, announced the complete closure of the Strait of Hormuz to shipping. On September 9, Iran announced the introduction of a no-shipping zone east of the Strait.
Two major gas suppliers, Qatar and the United Arab Emirates, are now effectively "locked up" in the Persian Gulf. The former has recently shipped about 11% of the usual volume of supplies, while the UAE has brought this figure to 60% of possible volumes due to the risky tactics of moving tankers through Hormuz without navigation, Alexey Belogoryev noted. Countries are currently producing more raw materials than they can export due to the risks of shipping across the strait.
Additional pressure on European quotes is exerted by the approach of the winter season, the traditional period of high demand for gas, Dmitry Scriabin noted.
At the same time, Europe largely provokes the September price increase itself, trying to "jump into the last car" and increase gas pumping into underground storage facilities before winter, Alexey Belogoryev believes. Usually, with the beginning of autumn, the rate of injection gradually decreases, as gas companies prepare for the fuel sampling period. However, the situation has changed this year due to the slow pace of replenishment in the summer.
As of September 9, gas reserves in underground storage facilities (UGS) in Europe amounted to 67%, which is the lowest level for this date in the entire history of observations since 2011, according to TASS calculations. Thus, the EU is approaching winter with abnormally low fuel reserves.
Europe has about one and a half months left before the start of the heating season and the period of active gas demand. Therefore, European companies have to compete more actively for supplies on the world market with Asian buyers and purchase fuel at higher prices, Alexey Belogoryev noted.
Rising oil prices also have an indirect impact on gas prices, although there is no direct relationship between them, the expert added. On September 10, the price of Brent crude oil rose to $105 per barrel.
What will be affected by high gas prices?
First of all, the current high cost of gas will affect the future revenues of European gas companies. Their business model involves the purchase of fuel in the summer at a lower price, followed by the sale to energy companies and other consumers in winter, when the demand and cost of gas is higher, explained Alexey Belogoryev. Now they have to build stocks at high prices, so in winter there is a risk of losses if by that time global quotations decrease. This could happen if the conflict between Iran and the United States stabilizes and supplies through the Strait of Hormuz are restored.
If the conflict continues and the shortage of raw materials on the world market persists, gas prices, on the contrary, may rise above current levels, and then companies will be able to avoid losses. An additional factor in the growth of quotations may be the EU's decision to completely abandon Russian LNG from January 1, 2027, the expert added.
Gazprom said that high gas prices and the backlog in filling underground storage facilities increase the risks to reliable gas supply to European consumers during the cold weather. In such circumstances, the region's market is particularly vulnerable to any increase in demand, import disruptions, and competition with Asian consumers for LNG.
Kirill Rodionov, an independent energy expert, believes that the current crisis once again shows how significant a role Russian gas has played in the European market. After the stabilization of relations between the EU and the Russian Federation, high prices may become one of the key arguments in the discussion about the possible return of domestic fuel.
For a number of European countries, there remains a risk that in the event of a severe winter they will have to urgently purchase additional volumes of gas on the world market and at the same time sharply reduce its consumption. The cost of fuel also directly affects electricity prices, Dmitry Scriabin noted.
Despite the high share of renewable energy sources in the EU, colder countries are still dependent on gas generation, as solar power plants do not provide stable generation in winter, explained Alexey Belogoryev. Therefore, further growth in gas prices will contribute to higher electricity prices.
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