European natural gas prices have surged to levels not seen in over a year, with the Dutch Title Transfer Facility (TTF) benchmark increasing by 16% in November alone, reaching €46 per megawatt-hour (MWh). This price hike comes as a result of a combination of cold weather, lower-than-expected wind energy production, and ongoing geopolitical tensions, particularly surrounding the Russia-Ukraine conflict. The disruptions in liquefied natural gas (LNG) supply and increased heating demand have further heightened market risks, prompting analysts to revise their forecasts for 2025 upwards, predicting tighter markets ahead.
In mid-November, front-month December TTF contracts traded at €47 per MWh, marking a sharp recovery from the three-year low seen in February 2023 when prices had dipped below €25 per MWh. This spike in prices highlights the vulnerability of Europe’s energy markets, particularly in the aftermath of reduced Russian gas supplies.
Cold Snap and Geopolitical Tensions: A Perfect Storm for Gas Prices
Unseasonably cold temperatures across the Northern Hemisphere have led to a significant increase in heating demand, exacerbating supply concerns. “A cold snap across the Atlantic has intensified market tightness, with sub-zero temperatures hitting northwest Europe and the US Northeast,” noted Quantum Commodity Intelligence in a report. Alongside this, a reduction in wind energy production has forced utilities to rely more heavily on gas-fired plants to meet demand.
As a result, Europe’s gas storage levels have fallen below 90% of capacity for the first time in 2023, dropping below the five-year average. While overall inventories remain healthy, concerns about supply shortages, particularly during peak winter months, have added a geopolitical risk premium to TTF prices.
The ongoing Russia-Ukraine conflict continues to be a significant factor in the volatility of European gas markets. For example, Gazprom recently halted gas supplies to Austria, stoking fears of wider disruptions. Moreover, the expiration of the pipeline transit agreement between Russia and Ukraine at the end of the year poses a potential risk, as it threatens the flow of 5% of Europe’s natural gas. Without a new deal, eastern and central Europe could face severe shortages this winter.
While Russian gas now makes up only a small fraction of Europe’s total annual demand—about 14 billion cubic meters (Bcm) per year, compared to Europe’s 370 Bcm total—any interruption in supply could stretch Europe’s infrastructure during peak demand.
Goldman Sachs Sees Prices Spiking to €77/MWh in Worst-Case Scenario
Goldman Sachs has also weighed in on the situation, noting that this winter is shaping up to be colder than last year, which is likely to drive heating demand even higher. The bank estimates that heating demand could increase by 46 million cubic meters per day compared to last year, which may leave European gas storage at just 40% capacity by the end of March 2025, down from 53% in March 2024.
As a result, Goldman Sachs has raised its 2025 TTF price forecast to €40/MWh, up from its previous estimate of €34/MWh. In the near term, the bank sees upward pressure on gas prices, although a new Russia-Ukraine gas transit agreement could lower prices to around €37/MWh. However, under extreme scenarios—such as further LNG project delays, unexpectedly strong Asian demand, or a colder-than-expected winter—prices could soar to €77/MWh. At such levels, European economies would likely face higher costs for energy, including potential shifts to oil-based products.
Economic Implications of High Gas Prices in Europe
The recent surge in gas prices presents significant economic challenges for Europe. Higher energy costs are likely to increase the financial burden on both households and industries, potentially hindering economic recovery and contributing to inflationary pressures. Energy-intensive industries may particularly struggle, finding it difficult to compete with international counterparts in regions where energy costs are lower.
Moreover, European policymakers are likely to face increasing pressure to introduce subsidies for energy costs or accelerate the transition to renewable energy sources to reduce dependence on the volatile natural gas market.
However, while the current spike in natural gas prices is concerning, they remain well below the extreme highs seen during the summer of 2022, when prices reached nearly €350/MWh amid the peak of the energy crisis. Still, with the ongoing challenges in supply and demand, it remains to be seen how long these elevated prices will persist.