A gas supply crunch in Europe has reignited fears over winter energy costs after market prices for the fossil fuel climbed to new highs across the UK and the Netherlands.
The market price for gas has soared by over 50% this year as reserves in storage facilities across Europe have dwindled to record lows, and the cost of importing shipments from the global market continues to climb.
The UK price of gas for delivery next month reached a record high of 91.4p a therm on Thursday, while prices on the Dutch market, the most important gas trading hub in Europe, reached a new peak of €36.83 (£31.69) a megawatt hour.
The prices have sparked concerns about an energy market “supercycle”, which could mean households and businesses face soaring heating bills this winter as European economies emerge from the global coronavirus pandemic.
Industry experts said last week that millions of UK households could face a winter increase in their energy bill of more than £110 a year because of a surge in commodity market prices.
The energy market rally has also threatened to reignite tensions over Russia’s gas supplies to Europe after the head of Ukraine’s state gas pipeline company accused its neighbour of withholding supplies despite soaring prices.
Sergiy Makogon, the chief executive of Gas Transmission System Operator of Ukraine, told the Financial Times that Europe’s gas supply crunch was “an artificially created problem” create by Russia’s Gazprom holding back exports.
He described Gazprom’s export strategy as blackmail intended to force the approval of a controversial new pipeline, Nord Stream 2, which is planned to carry Russian gas to Germany by bypassing Ukraine.
The slowdown in Europe’s imports of Russian gas, which are down by a fifth this year compared with pre-pandemic levels, comes against the backdrop of a global dash for gas.
Energy market experts at Rystad Energy said global prices rallied higher in June during the transition “from a colder-than-normal winter to a warmer-than-normal summer” which has forced Europe to compete with Asia for deliveries of liquified natural gas (LNG) aboard giant super-chilled tankers.
The strong demand for gas in Asia has slowed the rate at which many European energy companies have been able to store gas for next winter, meaning many will enter the colder months with lower reserves than usual and face higher prices to secure supplies.
Europe’s demand for gas is also likely to remain strong, despite the high prices, because the rising cost of emitting carbon dioxide will keep major utility companies from switching from gas power plants to burning coal, which emits almost twice as much carbon.