Gas prices could climb further and push up electricity costs

European gas prices could rise well above 100 euros per megawatt-hour this winter, increasing electricity costs, market participants told ERR.

The benchmark TTF price rose by more than a third in the past month and briefly topped 100 euros per megawatt-hour on Wednesday evening before easing. It has not reached that level since December 2022. Compared with the same time last year, the price is up by more than 210 percent, from just over 30 euros per megawatt-hour.

Energy expert Marko Allikson said the current price was not a peak. Depending on analysts’ forecasts, prices could reach 150 euros per megawatt-hour if the winter begins with severe cold spells.

Margus Kaasik, head of Elenger Group, said prices could rise substantially above current levels if the conflict in the Middle East continues or escalates, LNG flows through the Strait of Hormuz remain very low and Europe has a cold winter. Prices could also fall quickly if the geopolitical situation improves and LNG deliveries recover, he said. Kaasik added that forecasts currently point to a milder winter, making a prolonged cold spell like last winter less likely.

Tiit Hõbejõgi, a member of Enefit’s management board, said prices of 150 euros per megawatt-hour could not be ruled out in the event of exceptionally cold weather and high consumption. Colder conditions and a significant increase in gas use would put strong upward pressure on prices, particularly because gas storage levels are lower than usual, he said.

Kaasik said Europe’s relatively low gas storage levels should not be overstated. Gas consumption has fallen significantly in recent years, while Europe produces and receives more LNG, which can help cover any shortfall. He said storage fill rates alone do not show how well the continent is prepared for winter; the key measure is how much of expected consumption existing stocks can cover. By that measure, Europe’s gas reserves are not far below the historical average. Storage facilities are currently 75 percent full.

Disrupted LNG supplies from Qatar are also a factor. Kaasik said the shortage affects Asia particularly strongly, as countries there seek gas on the global market and compete with Europe, especially for US LNG.

Gas prices could also raise electricity costs

In winter, when demand is high and renewable generation may be limited, electricity prices in the region also depend on gas-fired power plants. At current or higher gas prices, the electricity they offer to the market would be very expensive.

Hõbejõgi said gas-fired plants often set the European electricity market price when they meet peak demand. Higher generation costs are passed on to wholesale electricity prices and ultimately to consumers. At current gas prices, the variable cost of a gas-fired power plant is about 200 euros per megawatt-hour, he said.