Surge in European Gas Prices as Russian Gas Flow via Ukraine Stops

Halt in Russian Gas Flow Sparks Price Surge

The cessation of Russian natural gas flows to Europe through Ukraine on January 1, 2024, has led to a significant spike in European gas prices. The Dutch TTF, the benchmark for European natural gas, surged by more than 4%, reaching €51 per megawatt-hour, its highest level since October 2023. Although prices eased slightly after the initial spike, the halt in Russian gas deliveries triggered a volatile response from the market. The disruption, tied to the expiration of the transit deal, has added pressure to the already strained European energy market.

Cold Weather Amplifies Concerns Over Energy Supply

The timing of the gas flow stoppage coincided with a cold snap across northern Europe, which exacerbated the surge in gas prices. Freezing temperatures increased heating demand, further depleting gas inventories that were already being drawn down quickly. European gas storage levels, which had been holding steady at around 75% in mid-December, have been emptied at their fastest pace since 2021. With Russian gas accounting for approximately 5% of EU imports, the sudden loss of this supply raises concerns about the adequacy of storage levels for the remainder of winter.

Price Volatility and Long-Term Implications for EU Economy

While the European Union (EU) has stated there is no immediate risk of an energy crisis, the suspension of Russian gas has made the region more vulnerable to market fluctuations. Gas prices have already risen 50% compared to last year, and further increases are likely as the EU looks to fill the gap with alternative supplies, such as liquefied natural gas (LNG). Rising energy prices could strain the EU’s competitiveness and add to the cost of living for households, especially if the cold weather persists.

Central Europe Faces Greater Risks

Countries in Central Europe, particularly Hungary and Slovakia, are most exposed to the impact of the Russian gas stoppage. These countries relied heavily on the Ukrainian gas transit route, which accounted for 65% of their total gas demand in 2023. Although TurkStream, an alternative route from Russia, can provide some supply, it is insufficient to make up for the loss of the Ukrainian pipeline. To address the shortage, the European Commission has proposed solutions, including redirecting gas from Greece, Turkey, and Romania through the Trans-Balkan route, but these measures may not fully alleviate the pressure.

Challenges in Refilling Storage and Rising Costs

Looking ahead, the EU faces a challenge in replenishing its gas storage levels for the next winter season. With gas prices for summer 2024 now higher than those for winter 2025-26, refilling storage could prove more costly than expected. Experts warn that the EU could exit this winter with lower-than-anticipated gas reserves, making future restocking efforts financially burdensome.