According to EU regulations, member states must ensure gas reserves reach 90% of capacity before the cold season. However, after last winter, the amount of gas in the warehouse has dropped to only 1/3, making replenishment more urgent and expensive than ever.
Europe has just experienced its first truly winter since the Russia-Ukraine conflict broke out, the Financial Times quoted Ano Kuhanhanhanhan, an expert at Allianz Trade, as saying. At the same time, wind power output has decreased sharply, forcing many countries to return to using more gas.
Although gas prices have fallen this year due to weak demand from China, the total cost to reach the target of 90% of reserves before November still skyrocketed to about 29 billion USD, compared to 18 billion USD last year when Europe filled almost all (99%) of reserves.
Many countries, led by Germany - a country that depends greatly on the gas - has asked to loosen the target of 90%, after realizing that this regulation causes the gas price to rise suddenly in the summer. The EU is considering adjusting the law to be able to reduce the request to only 83%, but the possibility of the new law passed before the summer is very low.
gas traders are rushing to buy, as they expect prices to fall further, Kuhanathan said. However, this could make the end of the summer an explosive buying period, pushing prices up strongly again.
Analysts at Morgan Stanley warn that gas prices could increase by 10% in the summer, as Europe must import more LNG liquefied natural gas (LNG) than last year to only reach 80% of reserves.
Mr. Peder Bjorland - Vice President of the gas segment of Equinor, Europe's largest supplier - warned: " Europe will have to pay higher prices to compete with China and Asian countries this summer".
China is currently temporarily reducing gas imports due to favorable weather and economic stagnation. But according to Morgan Stanley experts, if this summer is hot, gas demand in Asia could explode, further straining the global market.
Europe has spent more than $100 billion on gas and LNG imports in 2024.
Before the Ukrainian conflict, Russian gas through a huge pipeline system like Nord Stream was a cheap, stable supply and accounted for up to 40% of the EU's gas demand. However, since 2022, Europe has sharply cut its imports of Russian gas, switched to LNG and diversified supply from the US, Qatar, Norway...
As a result, import costs have increased sharply. Russian gas used to cost only half or even less than current international market prices - an energy expert commented. The EUs need to buy LNG which is expensive and volatile has further strained its energy budget.
