Russian Gas Supply Stops, Prices Climb
On January 1, 2025, European gas prices surged to their highest levels since October 2023, following a halt in the flow of Russian gas to Europe through Ukraine. The Dutch TTF, which serves as the benchmark for European natural gas, saw its price rise by over 4%, reaching €51 per megawatt-hour. Though prices slightly eased after this initial spike, the disruption in Russian gas supply and the freezing weather conditions across Northern Europe drove prices higher.
The sudden stoppage, caused by the expiration of a transit deal, has resulted in a loss of around 5% of the European Union’s natural gas imports, intensifying concerns about storage depletion. Natural gas inventories in Europe have been rapidly depleting due to an unusually cold winter, currently sitting at around 75%, the fastest decline since 2021. This situation has raised alarms about potential shortages as storage withdrawals may accelerate.
Concerns Over Energy Vulnerability and Market Volatility
While there is no immediate threat of a gas shortage or energy crisis, the European Union (EU) has expressed concerns over the potential volatility in energy markets. European gas prices have soared by 50% compared to the previous year, and this increase could negatively impact the competitiveness of European industries and raise household energy costs. If Europe turns to liquefied natural gas (LNG) imports to make up for the shortfall, prices could climb further, exacerbating the region’s energy woes.
Central European nations, particularly Hungary and Slovakia, face the greatest risks from the loss of Russian gas via Ukraine. These countries depended heavily on the Ukrainian transit route for 65% of their gas supply in 2023, according to Bruegel. While the TurkStream pipeline, an alternative route for Russian gas, remains operational, it cannot fully compensate for the loss of the Ukrainian route, leaving these countries vulnerable.
EU’s Strategic Response to Gas Shortage Threats
In response to the disruption, the European Commission has proposed several measures to mitigate the impact on affected countries. These include sourcing gas supplies from Greece, Turkey, and Romania via the Trans-Balkan route. However, experts warn that while the EU will likely avoid a gas shortage this winter, refilling gas storage levels may become more costly. The rise in gas prices for summer 2025, which have recently surpassed those for the winter of 2025-26, could lead to expensive restocking.
Arne Lohmann Rasmussen, chief analyst at Global Risk Management, highlighted the growing risk of the EU exiting the winter season with lower-than-expected gas reserves, making the process of replenishing them more expensive than initially anticipated. Despite these challenges, European gas prices remain a focal point as the EU remains focused on securing alternative sources and maintaining energy security in the face of an uncertain market.
