European Gas Prices Hit Four-Year High Amid Supply Concerns

Wholesale gas prices in Europe reached their highest level since 2022 on Monday, driven by cold weather and concerns over winter supply.

The price climbed to €97, or approximately £81, per megawatt-hour as temperatures across the continent fell. Traders responded to the drop in temperature by pricing in increased demand for heating. This level marks the peak for the region since the energy crisis began following Russia's full-scale invasion of Ukraine.

Supply anxieties are compounded by reports that the United States and Israel have drafted plans for new strikes against Iran. These reports emerged after the US midterm elections and contributed to volatility in energy markets. Oil prices briefly touched $117 a barrel on Friday. By Monday, the international Brent crude benchmark had retreated by about 2% but remained above $114 a barrel.

European gas storage facilities are currently at their lowest fill levels in more than a decade. Reserves stand at approximately 75% full, which is below the seasonal average of 80%. This shortfall results from a slowdown in exports from Qatar and higher consumption during the summer months. The increased summer demand was primarily used to power refrigeration and cooling systems.

The United Kingdom faces specific challenges due to its reliance on imported gas. British energy regulators noted that the country will likely face some of the highest energy costs in Europe this winter. The UK holds some of the smallest gas stores in the region, a situation stemming from decades of dependence on domestic North Sea production. According to the Office for National Statistics, the UK paid a record £4 billion for power imports in the year ending in August. Half of that amount was spent on electricity imported from France.

Grid infrastructure issues in Britain have also affected costs. The country made near-record payments over the past year to run gas plants. Simultaneously, wind and solar farms were paid to reduce output due to bottlenecks in the electrical grid. These operational costs add pressure to an already strained energy budget.

British households are expected to feel the impact in their bills. The typical annual dual fuel bill is predicted to rise by 16% in January. This increase would bring the cost to the equivalent of about £2,000. European stock markets showed slight resilience against the energy spike, with the Stoxx Europe 600 index up 0.3% and the UK FTSE 100 up 0.4% in early trading on Monday.