Gas Prices Surge as Russian Supplies to Europe Halt
The wholesale price of gas has surged to the highest level in more than a year, coinciding with the cessation of Russian gas supplies flowing to Europe through Ukraine. Benchmark prices reached the peak not seen since October 2023, following the expiry of a significant transit contract between Russia and Ukraine. This contract, signed in 2019, came to an end in the early hours of New Year's Day.
Traders had anticipated the discontinuation of Russian gas, as no alternative sources were established ahead of the stoppage. Consequently, they are watching closely for potential rapid withdrawals from storage facilities, which could become critical in the coming weeks.
On Thursday, the price for February gas delivery in the Netherlands saw a staggering increase of up to 43, before settling at a 19 rise, reaching 49.83 per megawatt-hour, as reported by Bloomberg. Overall, gas storage levels across Europe are depleting at the fastest rate since 2021, a situation exacerbated by the ongoing conflict between Russia and Ukraine.
Russia's full-scale invasion of Ukraine, which began in February 2022, has initiated the most significant conflict in Europe since World War II, driving up wholesale gas prices, inflating energy bills, and necessitating government interventions in the UK to subsidize household energy costs.
Ukrainian President Volodymyr Zelenskyy framed the termination of the transit deal as one of Moscow's most significant defeats, expressing this view through social media platforms. According to Ukrainian Energy Minister German Galushchenko, this decision represents a historic end to a vital energy route that has existed since the Soviet era, compelling several European nations to shift away from reliance on Russian gas supplies.
The gas shutdown, declared by Russia's Gazprom at 8 AM Moscow time (5 AM GMT) on New Year's Day, has already triggered power outages for countless residents in a breakaway region of Moldova. Slovakia’s Prime Minister, Robert Fico, who opposed the cessation of gas supplies, stated that the cut-off would dramatically affect all EU countries but would not impact Russia itself.
It is important to note that gas prices remain significantly lower than the peaks witnessed throughout 2022. Analysts at Deutsche Bank highlighted this perspective, although they also pointed out that European gas storage concluded 2024 at its lowest year-end level in three years. The recent surge in prices is expected to contribute to mounting inflationary pressures, raising concerns across the continent.
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