The cold and Russia push the price of gas to a new record

Gas prices in Europe broke a record again on Tuesday, the first day of winter, driven by severe cold and geopolitical tensions between Russia – a key supplier – and consuming countries.

“European natural gas continues its inexorable rise”, noted analysts from Deutsche Bank, and attribute it to the temperatures that continue to drop and the fact that the Russian company Gazprom did not reserve additional capacity in January for gas that transits Ukraine.

The European reference price, the Dutch TTF, rose 20% in Europe, climbing to a price of 175 euros per megawatt hour, breaking the previous record set on October 6.

British gas for January delivery also hit a new all-time high at 435 pound cents per therm (a unit of measurement of heat).

Those price levels are almost eight times higher than at the beginning of the year. For some analysts, the prices reflect strong demand as temperatures drop and fears about supply grow, since a third of the gas comes from Russia.

A gas pipeline under pressure

When there is an upsurge in tensions on the border in Russia and Ukraine, prices tend to rise, explained several experts in this market.

Western countries accuse Moscow of increasing its presence on the border with Ukraine, with a view to a possible military operation, an accusation that Russia denies.

On the other hand, the Kremlin perceives NATO to arm Ukraine and multiply the deployment of air and sea resources in the Black Sea region as a threat.

Berlin’s change of tone on the controversial Nord Stream 2 gas pipeline also raises investors’ concerns, as this route would avoid Ukraine, a route through which a large amount of Russian gas purchased by the European Union passes.

Former German Chancellor Angela Merkel, who recently left office, always defended this project, but the new German government of Social Democrat Olaf Scholz is less conciliatory and its Minister of Economy, environmentalist Robert Habeck, warned of the “consequences” for the gas pipeline if there is a Russian aggression against Ukraine.

This Nord Stream 2 project, which cost 10 billion euros (equivalent to about $ 12 billion), has been weighed down by years of delays and draws constant criticism from both East German allies and the United States.

In this context, each declaration of the heads of diplomacy generates a wave of purchases in the gas market.

In addition, gas reserves in Europe were further reduced by a prolonged winter in 2020 and there was a lower contribution from the renewable energy market due to meteorological factors.

This rise has repercussions on the electricity market, especially in the United Kingdom, where energy production is highly dependent on gas and renewables. In countries like France, nuclear energy is predominant.

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