Wholesale gas prices in Europe have surged to their highest level since October 2023. Following the end of a transit deal, Russian gas is no longer flowing to Europe via Ukraine.
On New Year's Day, price of natural gas for February delivery briefly reached almost €51 per megawatt-hour (+4.3%) on the Dutch futures market, the European benchmark. This marks the highest level since October 2023.
The rise follows an upward trend seen in recent days in anticipation of the end of Russian gas transit to Europe via Ukraine. A five-year agreement between the two countries ended on 1 January 2025. Ukraine, subject to Russian invasion since February 2022, has refused to extend this deal which benefits its Russian adversary.
In anticipation of the contract ending, gas prices have climbed from around €30 per megawatt-hour in recent months to €50.
Another energy crisis?
Cutting off this gas supply, which has been serving Europe since 1991, leaves the region without a key route from Russia. The halt in supply is still being remedied by tapping into stored reserves. But storage inventories are already depleting at the fastest pace since 2021. Several countries in the region now face freezing temperatures, further driving up heating demand.
For EU Member States, a repeat of the 2022 energy crisis, which saw gas prices skyrocket, is likely not on the cards. The remaining volumes of Russian gas coming into the EU are relatively small. Russia shipped about 15 billion cubic metres (bcm) of gas via Ukraine in 2023. This equates to around 8% of peak Russian gas flows to Europe via various routes in 2018-2019, Euractiv reported.
Europe has been importing liquefied natural gas (LNG) since the war in Ukraine started. This prompted the EU to cut its dependence on Russian gas and look to Russia's rivals including Norway, the United States and Qatar.
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However, Russia's energy giant Gazprom still supplied about 10% of total consumption in Europe, and just 5% of that supply now remains (mainly going to Hungary and Serbia via Turkey). This drop in supply will translate into higher prices.
Prices are also being driven up by the grey and windless weather experienced in many European countries in recent months. This resulted in very little renewable energy generation.
