On Thursday, European natural gas prices surged on the first trading day of 2025, reaching their highest level since October 2023. This rally was primarily driven by the closure of the gas transit route from Russia via Ukraine, unexpected supply disruptions from Norway, and increased demand due to plummeting temperatures in the northern regions.
As a major source of natural gas for Europe, the transit agreement for Russian gas delivery to Europe expired at the end of 2024, resulting in the closure of this route at the start of the new year. The failure of Russia and Ukraine to reach a new agreement heightened concerns over tight supplies in the European market. Additionally, unexpected interruptions in Norwegian gas supply further intensified market pressure. European countries faced a double blow of reduced supply during the peak winter demand period, driving natural gas prices to soar significantly.
As of 6 p.m. Amsterdam time on Thursday, the price of Europe's benchmark February natural gas contract rose by as much as 4.3%, ultimately closing up 2.8% at €50.27 per megawatt-hour. The market had anticipated the potential for disruptions in Russian supply, which became evident at the end of last year when natural gas futures prices surpassed €50 per megawatt-hour on December 31, 2024.
European gas inventories are depleting at their fastest rate since 2021 when the gas crisis first emerged. With inventories quickly dwindling, concerns about supply shortages are further intensifying. Traders are closely monitoring inventory levels, especially for several Central European countries that are heavily reliant on Russian supply. In the coming months, the sustained increase in heating demand and the timing of Norway's supply restoration will be key focal points for the market.
Analysts warn that the European natural gas market might face greater uncertainty. Against the backdrop of global energy price fluctuations, Europe needs to swiftly address new supply challenges while formulating long-term energy policies to alleviate short-term crises and long-term dependencies.
