The cold month of November, the surge in blue fuel and the expiration of the transit agreement with Ukraine cast a shadow on the energy supply situation for Europe
The rise in natural gas prices in recent weeks has brought back bad memories of the energy market turmoil following Russia’s invasion of Ukraine in 2022. At that time, Europe rushed to shake off its dependence on Russian gas, which sent the price of the raw material skyrocketing.
This has not only fueled high inflation but also raised concerns about possible power outages. High prices have strained energy-intensive industries, leading to business closures and job losses.
The last two winters, however, have been milder, and Europe has barely felt the pinch – not least because of lower energy consumption for heating. Now, however, natural gas prices are on the rise again: on November 21, one megawatt-hour was selling for almost €49 – the highest price in more than a year.
Are the concerns justified?
Nevertheless, prices are still well below their 2022 levels, especially given that overall gas demand has fallen since then. The shock of the November price hike can also be explained by the fact that prices have been far lower throughout 2024 than at any time since the start of the war in Ukraine.
The prospect of a colder winter has raised concerns that previously large reserves could run out and trigger a cyclical price hike. Meanwhile, however, Russia’s influence on the European market has significantly diminished after 2022, recalls Petras Katinas, an energy analyst at the Center for Energy and Clean Air Research (CREA). That is why he believes that fears of a new crisis are exaggerated. “The majority of EU member states are no longer so dependent on Russian gas,” he tells DW.
But what about Russian gas?
Russia is no longer the giant it once was when it came to gas supplies to the EU. The share of Russian gas imported by pipeline by member states was 40% of the total in 2021, and in 2023 it fell to around 9%. On the other hand, EU imports of Russian liquefied natural gas (LNG) have increased. In 2024, the increase was almost 15%.
Austria, one of the last European countries still receiving gas via pipelines from Russia, has permanently stopped supplies of the fossil fuel after a legal dispute with the state-owned Russian energy company Gazprom. Slovakia and Hungary are still receiving Russian gas, but all indications are that these imports will end at the end of this year. The five-year gas transit contract between Gazprom and the Ukrainian state company Naftogaz for the transport of Russian gas through Ukrainian territory expires this year, and the Ukrainian government has already announced that it will not be extended.
Boris Dodonov, head of the Center for Energy and Climate Research at the Kyiv School of Economics, says that “Ukraine has no economic reason to extend it.”
Is LNG the solution to all problems?
Dodonov believes that Europe will be able to meet its energy needs without Russian gas, as it imports liquefied natural gas from the United States. Moreover, US President-elect Donald Trump is expected to increase this production, and Europe may be ready to conclude a major gas trade agreement with the United States.
Since Russia’s invasion of Ukraine, liquefied natural gas now accounts for 34% of Europe’s total gas supply – twice as much as before the war began in 2022. However, the switch to liquefied natural gas also means that Europe will be more exposed to global price pressures.
Ed Cox of independent commodity data provider ICIS believes that in the event of a cold winter and after the transit through Ukraine is suspended, Europe will still be able to cover its needs with liquefied natural gas. However, there is a risk of significantly higher prices, as supplies cannot increase dramatically in the short term. “The question is not whether we will have enough gas, but how expensive it will be,” Cox added.
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