European Energy: Gas Prices Hit 2022 Highs Amid Winter Storage Lows

European energy markets are facing a sharp increase in costs as winter approaches. Wholesale gas prices reached €97, or £81, per megawatt-hour on Monday. This level has not been seen since 2022.

Traders cited falling temperatures across the continent, which increased the demand for heating. In the United Kingdom, the month-ahead gas contract increased by 4% to 240p per therm. This marks the highest price point for the UK market since December 2022, when prices surged following Russia's invasion of Ukraine.

Supply concerns in the Middle East are also influencing market behavior. Reports indicate that the United States and Israel have prepared plans for renewed strikes on Iran after the US midterm elections. These reports drove oil prices to $117 a barrel on Friday. Brent crude eased by approximately 2% on Monday but remained above $114 a barrel.

Continental gas storage is currently at its lowest level in more than ten years. Exports from Qatar have slowed, and higher summer consumption for cooling systems reduced winter reserves. Storage facilities are approximately 75% full, compared to a seasonal average of nearly 80%.

Britain’s energy regulators stated that the country will face some of the highest energy costs in Europe this winter. The UK relies heavily on imports to maintain supply stability. This dependence stems from decades of reliance on North Sea production, leaving the country with some of the smallest gas stores in the region.

Data from the Office for National Statistics shows the UK spent a record £4 billion on power imports in the year ending August. Half of that expenditure went to electricity imported from France. The country also made near-record payments to start gas plants while wind and solar farms were paid to switch off due to grid bottlenecks.

Households in Britain anticipate higher bills as a result. Energy costs are projected to rise by 16% in January. This increase will bring the typical annual dual fuel bill to the equivalent of approximately £2,000. Stock markets reacted mildly to the news, with the Stoxx Europe 600 gaining 0.3% and the FTSE 100 rising 0.4% in early trading.