In early August, Ukraine’s incursion into Russia’s Kursk region sent shockwaves through the European natural gas market, driving prices above €40/MWh due to fears that Russian natural gas supplies to the EU might be disrupted. Although prices initially spiked, they have since stabilized and may drop further, according to analysts. On the Dutch TTF futures exchange, natural gas prices surged by over 30% in recent days as market participants reacted to the fighting near Russia’s Sudzha compressor station. Despite the ongoing conflict, natural gas flows have continued without interruption, with transmission expected to remain stable until the natural gas transit agreement between Ukraine and Russia expires in January 2025.
By Monday, August 19th, TTF gas futures remained relatively flat as Russian gas continued to flow to Europe via Ukraine, and Europe’s gas storage levels remained well-stocked. From Tuesday, August 20th to Friday, August 23rd, prices trended downward, supported by strong gas deliveries in Europe and easing concerns about Middle East supply disruptions after Israel agreed to a proposal addressing issues hindering a ceasefire in Gaza.
However, several risks continue to influence market sentiment. For instance, natural gas flows from Norway, Europe’s leading supplier, have decreased by approximately 1 billion cubic feet (Bcf) due to maintenance at offshore facilities, expected to last more than three weeks. While the market seems largely unaffected by the escalating tension in the Middle East, analysts warn of potential price hikes driven by above-normal temperatures in central and eastern Europe, as well as an ongoing heatwave in Asia, which is expected to boost demand for natural gas, particularly in Japan and South Korea.
As of the latest trading, the one-month forward contract on TTF was priced at €39.155/MWh. The future of Russian gas transit through Ukraine remains a key uncertainty for European gas prices, particularly as the continent approaches winter with its underground storage nearly full. The transit agreement to deliver Russian gas to Europe via Ukraine, which accounted for 15 billion cubic meters (bcm) out of the EU’s total gas consumption of 295 bcm last year, is set to expire at the end of 2024. Ukraine has stated it will not renew the deal, and there are concerns that gas flows could be halted prematurely due to the fighting in Russia’s Kursk region, where the Sudzha transit point is located.
European gas storage levels are currently 91.2% full, having reached the November 1 target two months ahead of schedule, according to data from Gas Infrastructure Europe. Since April, EU storage injections have been 22% (or 9 bcm) below their five-year average, as Europe began the year with high inventory levels from the mild 2023/24 winter, which reduced the need for storage replenishment. The combination of achieving the 90% storage level milestone and stable Russian gas flows through Ukraine, despite the conflict near Kursk, has helped cool prices, which peaked at €40.396/MWh on August 9.
The EU has indicated that it will not pressure Ukraine to extend the transit agreement and has expressed confidence that member states can manage without these deliveries, which accounted for around 15 bcm in 2023. Nevertheless, most analysts have raised concerns about the potential negative impact on prices if gas deliveries via Ukraine are terminated.
