Europe Braces for Renewed Gas Price Shock Amid Winter Supply Strains

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Europe's industries are bracing for a potential surge in gas prices this winter as colder weather strains supplies, competition with Asia for liquefied natural gas (LNG) grows, and the threat of reduced Russian gas looms. Since the 2022 energy crisis, when gas prices hit nearly €350 per megawatt hour (MWh), numerous factories across Europe have shuttered, scaled back operations, and cut jobs due to uncompetitive energy costs.

Although gas prices are far below their peaks, they remain high, with EU companies paying 4-5 times the price of natural gas in the U.S., currently at $3.095/mmBtu (€10.02/MWh). Current EU gas prices hover around €50/MWh and could rise to €70/MWh next year, according to Francisco Blanch of Bank of America. This is still significantly above the pre-pandemic five-year average of €17.58/MWh, as per LSEG data.

Europe's gas storage is approximately 85% full, 10 percentage points lower than last year, raising concerns that cold weather could quickly deplete reserves. The European Commission has increased storage targets, further pressuring prices.

Impact on Industries

Over the past four years, high energy costs have led to the closure of dozens of factories and the loss of nearly one million manufacturing jobs across Europe, Bernstein data shows. Former ECB chief Mario Draghi noted in a September report that the loss of relatively cheap Russian gas has been a severe economic blow, with fossil fuels remaining essential until the decade’s end. Energy prices remain 2-3 times higher than in the U.S., straining competitiveness.

In Germany, energy prices and supply issues have prompted some firms to consider relocation, according to a survey by DIHK. Industry leaders warn of increasing risks of deindustrialization, particularly among small and medium-sized enterprises, while French industries anticipate operating at 70-80% capacity this winter due to high costs.

Supply Challenges and Competition

Europe’s gas demand is 17% below the pre-pandemic five-year average, with storage levels 10 billion cubic meters lower than last year. Imports, primarily LNG from the U.S. and Middle East, are expected to fill the gap, but competition with Asia is driving up costs. The European Parliament has restricted Russian LNG imports, adding further strain. Analysts predict heightened demand from the heating sector could also add pressure.

Despite lower prices than 2022, analysts warn against complacency. "We’re still at much higher levels than other key regions like the U.S., Middle East, and Russia,” said Svein Tore Holsether, CEO of fertiliser company Yara.

Nervousness about the potential expiration of a Russian gas transit deal via Ukraine at year-end has added to market volatility, fueling further concerns about Europe’s energy security this winter.

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.