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Why the gas price is setting new records in Europe

Why the gas prices in Europe are rising. Photo: SASCHA STEINBACH

Why the gas prices in Europe are rising. Photo: SASCHA STEINBACH

In recent days, natural gas prices in Europe reached $2,500 per 1,000 cubic meters, which is a new all-time record (the previous one was set in early March this year).

The war in Ukraine and related events, as well as Russian threats of gas blackmail, are permanent factors driving price increases this year.

In recent days, additional reasons for the increase have arisen:

  • hot and dry weather, which impedes the transportation of coal to power plants by rivers, which get shallower; limits the work of NPPs that use river water as a coolant; and raises the demand for both electricity and gas for producing energy;
  • lowered gas supply from Norway due to scheduled maintenance on extraction facilities.

On August 15, the TTF September futures contract hit €237/MWh ($2,510 per 1,000 cubic meters), which represents a 7.5% increase in a day, according to ICE. The October futures contract soared to €241. This is the highest price level in the history of the European natural gas market, exceeding the closing price of March 7, which was €227.

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From where is gas supplied to Europe now?

We’ve mentioned above that one of the reasons for the price increase was the tapering of supply from Norway, which decreased by 13 million cubic meters per day to 307 million cubic meters due to a scheduled outage of part of the extraction capacity of the country’s largest Troll gas field.

The supply from Russia remains stable but at record minimum levels:

  • via Ukraine — 41 million cubic meters per day;
  • via Nord Stream, which is currently working at a 20% capacity, Germany receives 33 million cubic meters;
  • via TurkStream in the European direction (to Greece, Serbia, and Hungary), gas is supplied at a 87% capacity— 41 million cubic meters per day.

So, Gazprom is now supplying around 115 million cubic meters per day to Europe. This is three times less than Norway supplies and 3.5 times less than Gazprom supplied in August 2021.

How do high gas prices influence European consumers?

The surge in the price of imported gas forces European governments to look for ways to increase prices for consumers.

In July, the German parliament introduced a new gas tax, which will be payable by all consumers from October 1. It amounts to 2.4 euro cents per kWh, which for a family of four will result in additional €450–500 a year. This money will be redistributed among gas importers.

Robert Habeck, the Vice Chancellor of Germany, said on August 15 that the new tax was the fairest possible measure in this situation, and that "the alternative would have been the collapse of the German energy market, and with it large parts of the European energy market." He also asserted that Germany will no longer rely on cheap Russian gas. At the same time the official said he hoped the supply of Russian gas to his country wouldn't be cut off completely.

The prospects for gas supply to Europe

The German government has recently secured a contract with energy companies to import liquefied natural gas (LNG) through two new terminals. Uniper and RWE Supply & Trading will operate the floating terminals in Brunsbuettel and Wilhelmshaven for the "temporary supply" of LNG. The two companies will also team up with EnBW Energie Baden-Württemberg AG and VNG AG to purchase the LNG.

Construiction works in the Brunsbuettel port in Germany. Photo: Frank Molter/picture Alliance/Getty Images

Construiction works in the Brunsbuettel port in Germany. Photo: Frank Molter/picture Alliance/Getty Images

Norway said it’s not able to increase gas supplies to Germany. Oslo delivers the maximum volume of gas permitted by the pipeline system to Germany. For Germany, Norway is the second largest supplier of gas after Russia, covering more than 30% of Germany's demand for natural gas.

Against the backdrop of gas shortages, the interest in biogas is rising. Denmark has achieved the greatest success in this regard. Biogas now covers 28% of its yearly consumption. has The government adopted the "Denmark can do more II" program, which aims to discontinue using Russian gas and use biogas to the maximum possible extent. The Danes want households and businesses to mostly use biogas by 2030.

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