A deep dive into the factors driving market volatility and what lies ahead for the continent’s energy landscape.
Despite the worst of the energy crisis triggered by the war in Ukraine being considered over, Europe remains in a state of persistent tension in the energy market.
With spring arriving and summer approaching, fuel demand is expected to decline, which could favor a fall in prices. However, Europe remains highly vulnerable to geopolitical shifts and uncertainties surrounding the potential resolution of the Russian-Ukrainian conflict. Gas still constitutes a major share of the continent’s energy supply, making price stability precarious.
European natural gas futures have climbed above €43/MWh, as investors increasingly acknowledge that a return of Russian gas supplies to Europe remains highly unlikely. Before a pivotal call between Russian President Vladimir Putin and U.S. President Donald Trump, there was speculation that Russian pipeline flows to Europe could resume, aiding in the replenishment of gas storage—currently below 35%, with a target of 90% by November 1.
However, while Putin agreed to temporarily suspend attacks on Ukraine’s energy infrastructure—likely to prevent retaliatory strikes on Russian facilities—he rejected a full 30-day ceasefire. Shortly after the call ended, Russia launched drone strikes on Kyiv and other Ukrainian cities, extinguishing hopes of a breakthrough toward peace.
The war remains a significant wildcard. Alongside geopolitical risks, economic uncertainty also plays a role, particularly regarding global economic recovery and industrial performance—especially in Europe. These compounding factors keep gas prices in Europe on alert. What’s driving the volatility, and what’s the outlook?
Europe, Gas Prices Under Observation. Here’s Why
On Friday, March 21, gas prices on the Dutch benchmark, Europe’s main reference point, rose to €44 per megawatt hour. Compared to a year ago, prices have surged by 58%, although on a monthly basis (February to March 2025), they have declined by nearly 7%.
Market volatility remains high. After hitting a two-year peak in early February, European benchmark gas prices have been declining, a trend that could accelerate as the seasonal drop in gas-fired power demand approaches.
The increase in the price earlier this year was largely driven by winter heating demand and reduced wind power generation, which forced utilities to rely more heavily on gas-fired power production to balance grid requirements.
According to energy think tank Ember, European gas-fired power generation in early 2025 reached its highest levels since 2021.
Adding to concerns, Europe entered 2025 with particularly low gas reserves, raising alarms over energy security. The International Energy Agency (IEA) reports that current gas stocks cover just 30% of the EU’s winter consumption needs.
Several factors have contributed to this: an unexpectedly cold winter, weaker renewable energy production in November 2024, and the complete halt of Russian gas transit through Ukraine at the end of 2024—despite this route accounting for only 5% of Europe’s supply. Consequently, operators have drawn from reserves rather than relying on imports, which fell by 6% in 2024.
More LNG in Europe—At What Price?
Then there’s the LNG factor. In 2024, liquefied natural gas (LNG) accounted for 34% of Europe’s gas demand, down from 40% in 2023. The IEA warns that LNG imports must increase significantly in the coming years to avoid supply shortages, particularly ahead of next winter.
However, LNG is also in high demand in Asia, complicating Europe’s supply outlook. The region must compete with other major economies to secure shipments, keeping upward pressure on gas prices in the months ahead.
While global LNG production is projected to grow by 5% in 2025, the IEA notes that this will not be enough to fully offset the loss of Russian gas supplies.
A more balanced market is expected post-2026, as new LNG export capacity—primarily from the U.S. and Qatar—comes online.
An Energy—and Gas—Problem for European Industries
One of the biggest challenges for European industry remains the region’s energy costs, which at the start of 2025 are still significantly higher than in the previous year.
According to LSEG, wholesale electricity prices in Germany, Europe’s largest industrial producer, averaged €127 per megawatt hour (MWh) in Q1 2025. That’s a 49% increase compared to the 2024 average, meaning that major energy consumers will continue to face severe cost pressures this year.
Electricity prices in the Netherlands, Italy, France, and Poland have also remained well above 2024 levels.
A key driver behind these rising energy costs has been the surge in regional natural gas prices, as gas still accounts for more than a quarter of Europe’s electricity production.
Should gas prices ease as seasonal energy demand declines, regional energy costs may soften, offering some relief to industries.
However, industrial gas consumers will continue to compete with storage operators, who will need to rebuild depleted regional reserves following the sharp drawdowns earlier this year.
Original article published on Money.it Italy 2025-03-21 10:18:00. Original title: Europa, cosa succede al prezzo del gas? Ecco cosa aspettarsi
