Gas prices return to 2022 levels and may rise further

European natural gas prices have risen to levels last seen in 2022 and could exceed 100 euros per megawatt-hour, ERR reported, as the continuing US-Iran military conflict and low European gas reserves complicate forecasts for the autumn and winter.

Gas traded on Europe’s Dutch TTF exchange at just over 40 euros per megawatt-hour around Midsummer. The price rose above 50 euros in early August and exceeded 70 euros by the end of the month. Compared with a year earlier, the increase is 130 percent.

On Wednesday, the TTF price reached 75 euros per megawatt-hour. It was last above 70 euros in late 2022.

Swedbank economist Liis Elmik told the Aktuaalne kaamera programme this week that gas prices are expected to continue rising in the coming months.

Kalvi Nõu, head of energy trading at Alexela, said it was impossible to make firm predictions because geopolitical events could quickly push prices in either direction.

“Further price rises are entirely possible in the current situation, but the trend could also change quickly if tensions ease,” Nõu said. “Based on what we know today, a winter TTF base level of about 70 euros per megawatt-hour could be expected, but it is more realistic to speak of a range of 60 to 90 euros. If unfavourable circumstances coincide, the price could temporarily rise above 100 euros.”

Prices could fall quickly if geopolitical tensions ease and liquefied natural gas, or LNG, supplies recover, Nõu added.

The main driver of the increase has been the prospect that the United States and Iran will not reach a peaceful agreement, along with the resulting risk that LNG supplies from the Middle East could be disrupted.

If the United States and Iran agree to end the fighting and the Strait of Hormuz reopens for normal use, this could significantly ease pressure on gas prices, Nõu said.

“This would reduce the risk of supply disruptions in the Strait of Hormuz and create conditions for Qatar’s LNG exports to return to normal. The conflict in the Middle East therefore plays an important role in the current high price level,” he said.

A peace agreement would remove a significant risk premium from prices but would not automatically bring them back to lower levels, Nõu added.

Margus Kaasik, head of Elenger Group, told ERR that a lasting agreement between the United States and Iran, the reopening of the Strait of Hormuz and the return of Qatari LNG to the global market would reduce competition for LNG and could put significant downward pressure on gas prices. If the conflict continues or escalates, the pressure would remain in the opposite direction.

Panicked buying could push prices higher

Other factors currently affecting gas prices include European countries’ gas reserves, the weather, LNG demand in Asia and production in other countries. A peace agreement would therefore not automatically resolve tensions in the European gas market, where countries are also struggling to secure sufficient winter supplies.

“Storage levels remain low, and Europe must significantly replenish its reserves before winter,” Nõu said.

“This makes the European market more sensitive to prices ahead of winter. Filling storage creates additional demand, and if this takes place while LNG supplies on the global market are limited, it could put further upward pressure on prices,” Kaasik said.

As of Thursday, storage facilities in European Union countries were just over 65 percent full, 16 percentage points below the level recorded at the same time last year.