Europe’s gas prices surged to their highest level this year on Monday, triggered by an outage at a Norwegian gas processing plant. This event underscores Europe’s growing reliance on Norwegian supplies since the continent largely weaned itself off Russian imports.
The benchmark European gas price, TTF, jumped past €38 per megawatt hour on the Intercontinental Exchange, marking a more than 13% increase and its highest point since early December. This surge serves as a stark reminder that gas markets remain volatile despite near-record storage levels in Europe.
Norway’s Pivotal Role in European Gas Supply
Norway has emerged as Europe’s largest natural gas supplier, accounting for 30% of the bloc’s supply in the past year. This significant shift occurred as most pipeline deliveries from Russia were halted following Moscow’s full-scale invasion of Ukraine in 2022. As a result, unplanned outages in Norway now trigger sharp reactions in the market.
High Storage Levels Offer Limited Buffer
Despite Europe’s comfortable gas storage levels, currently exceeding 70% capacity and the second-highest for this time of year, the price surge highlights the market’s fragility. While the European Commission aims for 90% storage by November, analysts predict it could be full by summer.
Fragile Market and Increased Volatility
“The surge in price highlights the fragility of the European gas market and increased overreliance on a smaller pool of supply sources,” stated Wayne Bryan, director of European gas research at LSEG. He emphasized that until storages reach EU-mandated levels, European gas prices will remain elevated and vulnerable to price volatility from any supply disruption.
Additional Factors Driving Prices Upward
Prices have been trending upward since late May following warnings from Austrian energy group OMV about potential Gazprom supply disruptions. The Nyhamna gas plant outage, with a capacity of 79.8 million cubic meters per day, further exacerbates the situation.
A heatwave in Asia is also increasing demand for liquefied natural gas (LNG), putting additional pressure on European gas prices to remain higher in order to attract LNG cargoes.
Short-Term and Long-Term Concerns
Tom Marzec-Manser, head of gas analytics at ICIS, identified the Norwegian outage and events surrounding Gazprom customers as the primary drivers of European gas prices. He noted that the outage could potentially reduce Norwegian flows by over 20%. While the immediate concern lies with Norwegian and Russian pipeline supplies, the global LNG balance shortness into winter presents a longer-term challenge for the European gas market.