The price of natural gas futures in Europe reached €86.50 per megawatt-hour on October 13, 2023. This figure is the highest level since the start of the U.S. and Israeli regime's war against Iran in late February. With an increase of about 170% compared to pre-war levels, concerns about energy supply in Europe have intensified.
Decrease in gas reserves and increase in demand
Gas storage facilities in Europe are less than 74% full at the start of the heating season, while the normal level of reserves at this time of year is around 90%. This decrease in reserves could limit the market's ability to cope with sudden increases in consumption or supply disruptions. Additionally, with the heating season starting in early October, any increase in demand may heighten the market's sensitivity to supply developments.
Political and climatic consequences
Political tensions and reduced wind power generation, along with forecasts of lower temperatures in parts of Central Europe, could increase gas consumption for heating. Reduced wind speeds may also limit electricity generation from wind turbines, and if there is a need to compensate for reduced production from other sources, demand for gas in power plants may rise. The combination of these factors, in a situation where European gas reserves are below normal levels, becomes even more significant.
Market analysts, particularly Ole Hansen, head of commodity strategy at Saxo Bank, have warned about potential difficulties in the upcoming winter. He stated that even a limited drop in temperatures could be sufficient to drive prices higher, indicating the vulnerability of the European gas market under low reserve conditions.
The European gas market faces three main concerns: a price increase of about 170% compared to pre-war levels, reserves that are below normal levels, and the likelihood of increased consumption as temperatures drop. The recorded price of €86.50 highlights the significance of these pressures, but the final direction of the market will depend on supply and demand developments in the coming weeks.
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