Europe’s Natural Gas Prices Surge to Two-Year High

Europe is facing a sharp spike in natural gas prices, with Dutch TTF Natural Gas Futures soaring by 4% on Monday, hitting the highest level since February 2023. This surge, which brings natural gas prices to over $100 per barrel oil equivalent, comes as a result of colder-than-usual winter weather and fast-depleting natural gas inventories. The combination of prolonged cold snaps and dwindling stockpiles is causing significant strain on Europe’s energy market.

As Europe’s natural gas reserves fall to the lowest level since the 2022 energy crisis, industries are looking for alternative, more cost-effective fuel sources. With natural gas now priced higher than oil in many regions, burning oil and coal for industrial purposes has become more economical. This switch from gas to oil is already having an impact on Europe’s energy consumption and could lead to increased oil demand in both Europe and Asia, especially in the first quarter of 2024.

Bjarne Schieldrop, Chief Analyst of Commodities at SEB bank, noted that the high natural gas prices are pushing industries to burn more oil, with even diesel becoming cheaper than natural gas. He pointed out that natural gas consumers worldwide are opting for oil products if their natural gas prices are pegged to the LNG market. Europe and Asia are expected to consume more oil and coal wherever feasible.

As Europe shifts to oil and coal, the global oil market may see tighter supply, providing OPEC+ with an opportunity to bring more barrels back to the market. The rising oil demand fueled by the gas-to-oil switch could play a crucial role in balancing global oil prices in the months ahead.

With gas storage levels already at their lowest for this time of year since 2022, Europe is feeling the pressure. Analysts from ING pointed out that inventories are only 49% full, compared to 67% at the same time last year, adding to concerns about Europe’s energy security.