Euro 100! Europe Gas Prices Spike To 2022 Crisis Levels: Households, Industry Brace For Impact

Benchmark futures jumped more than 5% to the highest since December 2022, breaching a threshold last seen during the turmoil that followed Russia's invasion of Ukraine. Rising heating demand, unusually low European stockpiles and fears that an escalation of the Iran war could further disrupt global gas supplies have combined to drive the latest surge.

Prices have more than tripled since before the Iran war, rapidly reversing years of progress in bringing Europe's energy costs back under control. Supply disruptions linked to the Middle East conflict have already added more than €100 billion to Europe's fossil-fuel import bill. With inventories unusually low for the time of year and colder weather set to lift demand in the coming days, the return to triple-digit prices is deepening pressure on businesses, households and governments.

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Europe is still far from the extreme prices reached during the last energy crisis. But the pressure is spreading beyond gas, with higher oil, diesel and power prices adding to energy inflation across the economy. Social unrest over the cost of living has started to erupt in parts of the region, while signs of stress are emerging in manufacturing and the European Union has asked member states to consider measures to curb energy demand.

"Once again, due to geopolitical turbulence, Europe faces another energy crisis," EU energy chief Dan Jorgensen said Wednesday following a dialogue with European refineries. "This is putting a strain on our companies and on our households."

The US has told several Persian Gulf countries to be prepared for a short, intense military campaign after the midterm elections, the Wall Street Journal reported, citing unidentified people, a prospect that also pushed oil prices higher on Wednesday. Qatar - a top LNG supplier in the Middle East - has already extended force majeure on deliveries to Italy's Edison SpA and some Asian buyers through the end of the year.

"We have two wars and their impact have merged," said Anne-Sophie Corbeau, a researcher at Columbia University's Center on Global Energy Policy. "All commodity prices are up, so they are pushing each other."

A prolonged conflict will likely force Europe to pay up for liquefied natural gas cargoes, especially if cold spells boost demand in Asia. Lower-than-usual inventories have left Europe on weak footing as it enters winter, forcing it to outbid competing buyers for spot supplies.

While temperatures in Europe's northwest rose above normal this week, they're forecast to drop in the next few days, potentially coinciding with cold snaps in parts of Asia.

Asian LNG prices have also surged to highest since 2022. If this winter proves to be colder than average and supplies are tight, Europe's benchmark could spike above €200 per megawatt-hour, consultant Energy Aspects Ltd. warned earlier this month. That would be a competitive disaster for European industry, especially with the equivalent price in the US near €8.5 per megawatt-hour.

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"€100 is no doubt a psychological mark," said Tom Marzec-Manser, director of Europe gas and LNG at Wood Mackenzie. "With the geopolitical situation in the Middle East changing so much at the moment, particularly given the upcoming US midterms, it will not take much to move European gas prices even higher."

The region has few, if any, quick fixes to cushion the impact on consumers at a time when budgets are already under pressure. The EU is moving to delay new methane-emissions rules that could have hindered gas imports, but it won't help curb prices in the short term. A full ban on Russian LNG is still due to come into force in January, and there is pressure from some parties to rethink such measures in order to ease costs.

Dutch front-month futures, Europe's gas benchmark, traded 4.4% higher at €100.30 a megawatt-hour by 5:29 p.m. in Amsterdam. Equivalent contracts in the UK also jumped to the highest since December 2022.