European Gas Rises Following Loss of Russian Flows Via Ukraine

European gas prices advanced on the first trading day of the year as the region braced for freezing winter temperatures without a key source of supply.

Benchmark front-month prices rose as much as 4.3% to €51 a megawatt-hour, the highest since October 2023. Russian gas deliveries across Ukraine halted on New Year's Day after a transit contract between the two warring nations expired, with no alternative in place.

Traders are watching to see whether the loss of Russian flows — an important source of supply for several central European nations — will trigger faster withdrawals from storage. Inventories across the continent are already falling at the fastest pace since 2021, when the gas crisis was just starting to brew.

The halt coincides with forecasts for sub-zero temperatures in some countries, which will drive up heating demand. In Slovakia, one of the nations worst-hit by the cutoff, the mercury may sink as low as minus 7C (19F) by mid-January.

While Europe is unlikely to run out of gas this winter, thanks to inventories and deliveries from other suppliers, traders may find it harder to refill storage for the next heating season. Gas prices for next summer recently surged above those for winter 2025-26, which will make it more costly to restock.

“There is an increasing risk that the EU will exit the winter with low gas storage levels, making it expensive to replenish them,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen.

Russian piped flows to Europe now only have one route — a conduit crossing Turkey that sends the fuel to Hungary. Deliveries on that link will be closely watched.

With the loss of flows via Ukraine, Europe will also deepen its reliance on liquefied natural gas, including from Russia. The country shipped record volumes of LNG to the region last year, making it the largest supplier after the US, which has recently started up two new export plants.

Still, for landlocked nations in central and eastern Europe, the cost of seaborne delivery to Germany, Poland or Greece, subsequent regasification and onward transit makes LNG an expensive option. Slovakia has estimated that gas imports from the west would result in additional costs of €177 million ($183 million).

“Gas markets in Europe are in no way short,” but transporting the fuel from west to east is “somewhat constrained, so that this will result in a markup for the region,” said Walter Boltz, a former Austrian regulator who's now a senior energy adviser at Baker & Mckenzie LLP.

Europe as a whole will need to compete harder for LNG this year, especially in the summer when energy demand for air conditioning soars in Asia. While several new LNG plants are under construction worldwide, meaningful capacity additions won't be ready for another couple of years.

Benchmark gas for February delivery in the Netherlands rose 3.1% to €50.39 a megawatt-hour by 8:10 a.m. in Amsterdam. Futures also topped €50 on Dec. 31 in anticipation of the halt in flows.