Global gas markets are facing heightened concerns over supply risks as colder weather looms, exacerbating market tightness. European benchmark futures saw a sharp increase of up to 3.9% in the third week of November after weather forecasts indicated dropping temperatures in the coming days. Prior to this expected cold snap, Europe had been drawing gas from storage facilities at a faster-than-usual pace, leaving it vulnerable to potential supply disruptions.
These risks have escalated in recent days due to intensifying conflict between Russia and Ukraine. The U.S. decision to provide Ukraine with long-range missiles has further heightened the risk of damage to critical energy infrastructure in both countries. Meanwhile, in North Asia, LNG prices surged after Woodside announced an unplanned shutdown of its Pluto LNG facility in Australia, which is currently under investigation. This disruption adds to concerns that the LNG market could tighten, especially as Europe competes with North Asia for cargo shipments.
In the ICE market, TTF gas futures for December 2024 delivery climbed significantly in the third week of November. Prices exceeded €45/MWh for much of the week, with the highest settlement price reaching €48.30/MWh on November 21, marking a 2.3% increase from the previous day and the highest price since November 2023. European natural gas prices continue to trade near their highest levels this year as geopolitical tensions strain pipeline supplies, and colder temperatures accelerate gas withdrawals from storage.
The European gas market is also preparing for the expiration of the gas transit agreement between Russia and Ukraine, set to end on December 31, 2024. Ukraine has stated it will not pursue a renewal, raising concerns about the impact on European gas supplies. Slovakia’s state-owned energy company, SPP, has already signed a short-term contract with Azerbaijan’s SOCAR to secure gas in anticipation of potential supply disruptions from Russia. According to the Bruegel think tank, gas delivered through Ukraine currently accounts for about 5% of total EU gas imports, and once the transit agreement expires, the EU will need to find alternative sources of 140 TWh of gas annually, a shift that will be especially felt in Austria, Hungary, and Slovakia.
On the frontlines of the war, Russia launched its largest airstrike on Ukraine in nearly three months, severely damaging its power grid and nuclear power plant substations. This attack is expected to have further consequences for Ukraine’s energy infrastructure, adding to the already fragile supply situation. The heightened geopolitical tensions between Russia and Ukraine are leaving gas markets more vulnerable than oil, with winter demand and supply uncertainties keeping investors cautious.
As of November 25, European Union gas storage was 87.68% full, below the five-year average of 91% for this time of year, with withdrawals exceeding 5.4 TWh by November 20. However, the faster rate of withdrawals could be partially offset by increased LNG imports, stabilizing prices to some extent. U.S. LNG exports to Europe rose significantly in Week 47, reaching 1.23 metric tons, up from 0.93 metric tons the previous week and 0.67 metric tons in early November, as cargoes were redirected from Asia to Europe in response to higher European prices.
