As the first anniversary of Russia’s invasion of Ukraine approaches, TTF (Title Transfer Facility) has dropped to a record-low price. Widespread accusations have been leveled against Moscow that it weaponized its gas supply over the past year, limiting supplies to exert pressure on the West to make concessions in the war. Nonetheless, even though the amount of Russian pipeline gas flowing to Europe is only 10% to 15% of what it was a year ago, gas prices have dropped to levels last seen in late 2021.

Current prices

For the first time in this year, the front-month contract at Europe’s top TTF gas hub fell below €50 per MWh ($567 per 1,000 cubic meters) on February 21 due to easing shortage concerns, mild weather, an abundance of LNG, and decreased industrial demand.

The average price per MWh for the March TTF contract during the trading day was €49.3, down from €140 as recently as early December. Since peaking in August of last year, European gas prices have dropped by as much as 85%, reflecting growing trader confidence that the continent will not only get through this winter’s cold snap with adequate gas in stock, but is also well-positioned to avoid shortages next year.

The utilization of Europe’s gas storage facilities is currently at 63.7%, which is historically high for this time of year. This is due to the aforementioned variables as well as the required targets that the EU imposed on member states last summer to increase inventories before winter.

Situation with LNG

Despite this, gas prices are still much higher than they were in the past, indicating that the energy crisis is far from finished. Before a surge of new LNG (liquefied natural gas) supply coming online in the middle of the decade, it is anticipated that the market would remain constrained for several more years.

In the short future, the outlook will mostly depend on events in China, where a resurgence in the economy and a following upsurge in LNG imports are anticipated after COVID-19 limitations were loosened this year. However, the Freeport LNG terminal in Texas received a license to resume production at one of its liquefaction trains on February 21, which is good news for European consumers.

According to data from Eurostat, EU gas consumption between last August and January this year was 19.3% lower than the average for the same six-year period between 2017 and 2022, reflecting the impact of high prices on European demand this year.

The decrease in demand more than met Brussels’ target of reducing dependency on Russian gas as part of its REPowerEU programme. Ireland was the member country with the smallest percentage reduction in gas usage, with a 0.3% decrease. Finland, Lithuania, and Sweden, on the other hand, reduced demand by 57.3%, 47.9%, and 40.2%, respectively.

Therefore, the EU countries confidently coped with Russian gas blackmail. The obvious goals of the plan appear to be to undermine Kyiv’s partners and, possibly, to incite nationalism. For example, at a protest in Berlin, the far right AfD party demanded “energy security and inflation protection. A co-leader of the party charged that the administration was waging “economic war” against Russia.

Leaders of European countries have repeatedly called these changes irreversible. 

Projects involving renewable energy have benefited from Putin’s energy war with Europe. Installations of solar panels and heat pumps have been one of their most excellent years since the EU sped up the permitting process. To reach 208.9GW in 2022, solar capacity increased by 41.4GW, or 25% annually, and is expected to grow even more rapidly in 2023.

Photo: Reuters