Rising geopolitical tensions significantly impacted global gas prices, with European gas futures reaching their highest levels in nearly a year. This surge was mainly due to uncertainty surrounding Russian gas supplies, particularly after Gazprom PJSC informed Austria that it would cut gas deliveries to zero. The suspension came in response to Austria’s decision to stop payments to Gazprom as part of efforts to recover a €230 million arbitration award. This development caused European gas prices to rise, with the region’s benchmark contract increasing by as much as 2.7%, reversing earlier losses and reaching the highest level seen in about a year.
Price Movements in TTF Gas Futures
In the second week of November, TTF gas futures for contracts due for December 2024 delivery surged past €43/MWh, marking a significant increase compared to the previous week. On November 11, TTF futures reached €43.728/MWh, a 3.1% increase from the last session of the previous week. Prices dipped slightly on November 13, falling to €43.666/MWh, but quickly recovered and continued to rise throughout the week. By November 15, the futures reached their weekly peak of €46.551/MWh, a 0.7% increase from the previous day, marking the highest settlement since early December 2023.
Impact of supply disruptions and geopolitical events
The escalation of tensions was further fueled by a statement from Austrian utility OMV, confirming that Russia had reduced gas supplies in response to Austria’s decision to halt payments for gas imports from Gazprom. While Gazprom continued to send gas to other parts of Europe, the situation remained fragile, with rising tensions putting future supplies at risk. Additionally, Russia’s ongoing missile and drone attacks on Ukrainian energy infrastructure added to concerns over the security of energy supplies in Europe. The approval of long-range missiles to Ukraine by the US was not expected to ease tensions significantly, and it was anticipated that supply disruptions could lead to fierce competition for LNG shipments in the coming months.
As of the latest data, the one-month forward contract at TTF was trading at €46.300/MWh, signaling a volatile market. The cessation of gas deliveries to Austria on November 16 was a notable event, even as Europe has made efforts to reduce reliance on Russian gas. However, countries like Austria, Hungary, and Slovakia remain key importers of Russian gas, which is transported via Ukraine under a transit agreement that is set to expire at the end of the year. The halt in deliveries means Austria will need to manage without Russian gas sooner than expected, which could further tighten an already constrained market.
Surging demand and tightening gas market
European gas prices have risen by about 30% since the end of July, driven by several factors including colder-than-usual weather and a decline in wind generation. European gas storage withdrawals also surged in the last two weeks, with over 4 billion cubic meters (bcm) of gas withdrawn since the start of November, as low wind speeds and colder temperatures boosted demand for heating and gas-based electricity generation. Gas-based generation rose by an impressive 85% year-on-year during this period, further stressing supply.
As a result, European gas demand has been consistently above its 5-year average since early November, exacerbating concerns over gas availability. Despite this, data from Ukraine’s grid operator showed that nominations for Sudzha, a key cross-border point on the Russian-Ukrainian border, indicated normal flow levels for the time being. However, the situation remains fluid, and further disruptions could lead to increased volatility in the European gas market.
