A year ago, many market watchers were warning that it was premature to say Europe’s gas crisis was over. Now it seems it is back with a vengeance.

WHAT: Europe is seeing record gas storage withdrawal and prices are once more surging.

WHY: The continent is suffering from the loss of Russian supply transit via Ukraine and limited availability of LNG.

WHAT NEXT: The main options for more supply this year is fresh LNG coming on stream mainly in the US, and a resumption in Ukrainian transit.

Europe’s natural gas storage facilities are nearing half-capacity, with withdrawal rates at their highest seasonal level for four years and gas prices surging to their highest level since late 2023. A year ago, many market watchers were warning that it was premature to say Europe’s gas crisis was over. Now it seems it is back with a vengeance.

 

Supply is short 

The EU entered this year with 5% less gas supply, following the expiry of the five-year contract covering Russian natural gas transit through Ukraine on December 31. This has already triggered major supply shifts, as buyers in Central and East Europe have scrambled to find alternative supplies. Russian gas supplies through the TurkStream in January were up 27% year on year and 4% month on month, reaching 1.56bn cubic metres, as Hungary imported more gas via the route to offset its lost deliveries through Ukraine. Slovakia, which had relied on Ukrainian transit to cover roughly 60% of its demand, is likely to follow suit in using TurkStream, importing via Hungary.

TurkStream already overtook Ukraine as the top route for pipeline Russian gas entering Europe, handling 23% more gas at 16.7 bcm, while only 15.4 bcm flowed through Ukraine. Following the end of Ukraine transit, it is also now the only route, given both Yamal-Europe and Nord Stream 1 have been non-operational since 2022. But an attempted Ukrainian drone strike against TurkStream’s compressor station in south Russia last month has heightened the risk of a disruption.

At the same time, the global LNG market remains very tight, limiting Europe’s ability to attract cargoes away from Asia, where the fuel typically sells for a premium. LNG imports at European terminals reached only 10.4 bcm in January, down 0.7% m/m and 2.5% lower y/y, and representing the lowest level for the month in two years, according to data published by Gas Infrastructure Europe (GIE). Europe will need more LNG to offset the loss of supply through Ukraine.

 

And prices are spiking

The March delivery contract at the Dutch TTF gas hub closed on February 3 at almost €54 per MWh ($591 per 1,000 cubic metres), up from €48 per MWh a week earlier. Front-month prices are now at their highest level since October 2023, with growth in recent days driven by forecasts of colder weather sweeping northwest Europe in February, in contrast to previous projections of mild temperatures. Recent weak wind power generation in Europe has also driven up demand for baseload power generation like gas, nuclear and coal. Wind accounted for 21% of the EU power mix in January, hardly changed from the share in December when wind output was also unseasonably low.

Prices were likely also buoyed by an announcement by Ukraine’s Naftogaz that it is planning to import gas from the EU this month, having previously said it would avoid doing so this winter. And Moldova’s breakaway region of Transnistria has also started importing gas from the rest of the country after losing its Russian supply transited through Ukraine, at a daily rate equivalent to 1 bcm on an annualised basis. Meanwhile, Germany’s gas market manager Trading Hub Europe is in talks with the government on the potential subsidising of storage injections this summer, which would drive up demand further.

On the global stage, there are concerns of a disruption at Malaysia’s 30mn tonne per year (tpy) Bintulu LNG export terminal as a result of flooding, although so far operations have been reported as unaffected.

 

Record storage withdrawal

Against this backdrop of factors, European gas storage withdrawal rates have soared. In January, they rose to their highest level in four years and the third-largest monthly amount since records began, totalling 21.3 bcm. This is 13.5% more than was imported in January 2024. Storage utilisation fell to 52.7% as of February 3, or 7 percentage points lower than the average for this date in the past five years. Since Europe’s heating season began on October 29, around 49 bcm of gas has been withdrawn, equivalent to roughly a sixth of total EU gas demand.

While EU storage levels are low compared to levels seen in the last few years, which saw unusually warm winters and EU mandates to stock up on gas ahead of the colder months of the year, they are comfortably within the range seen in the last decade. However, the market is much tighter now than it was in the years prior to the start of the global energy crisis in 2021. 

Europe is on track to exit winter with enough gas to avoid shortages. But the current state of the market bodes badly for energy costs during the rest of the year, including the expense of having to stock up on gas for next winter. Traditionally, gas prices are higher in winter as a result of increased demand for heating and lower in summer, with traders taking advantage of the lull in consumption during the warmer months to buy gas cheaply that can be placed in storage and sold for more when demand is higher in winter.

This year is very different, however, with gas for delivery throughout the summer currently priced at about the same level as gas delivered today. Futures contracts over the rest of 2025 do not see much decline in October, and even the December contract is priced at €47 per MWh, only 13% less than next month’s contract. However, EU legislation introduced in 2022 requires that member states must fill their gas storage facilities to 90% by the start of November, which is likely to be a very costly undertaking.

 

Supply outlook

Global LNG exports are expected to rise by 18mn tonnes in 2025, according to Energy Aspects, as Reuters reported on January 27, with most of this extra volume due to be absorbed by Europe, offering some relief to the supply crunch. Projects launching this year include the Plaquemines LNG and Corpus Christi LNG Phase 3 in the US, LNG Canada, Mexico’s Energia Costa Azul LNG and the Mauritania-Senegal Greater Tortue LNG.

On the other hand, there is limited prospect of extra non-Russian pipeline supply, with Europe’s top gas supplier Norway projecting a 3% decline in production this year, Azerbaijan set to supply only a modest extra amount of gas and North African suppliers lacking any spare capacity.

On the upside, there is the prospect of Ukrainian transit restarting at some stage, potentially brokered as part of a peace or ceasefire agreement to end the fighting in Ukraine. After avoiding taking a stance last year on continued transit, Brussels appears to be more supportive of it, with EU officials debating it as part of a possible settlement deal to end the conflict, the Financial Times reported on January 30, citing sources. However, it could take a number more months before a peace deal emerges, if it does at all. And it could take several months more for transit arrangements to be finalised.

Meanwhile, TurkStream could flow more gas to Europe, but only a maximum of around 18 bcm this year, up from 16.7 bcm in 2024. A more outlandish possibility could be the launch of the remaining, undamaged 27.5 bcm per year string of the Nord Stream 2 pipeline – something that has been proposed by Germany’s far-right AfD party, currently a distant second but climbing in the polls ahead of the country’s general election on February 23.

Certainly, the current state of the European gas market makes it unlikely that the EU will take any further steps to curtail Russian LNG imports, which 10 member states have called to be included as part of the bloc’s 16th package of sanctions, due to be announced on February 24. EU imports of Russian LNG hit a new record high last year, totalling 17.8mn tonnes, and it looks likely that, for the time being, that dependency is here to stay.

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