European Gas Hits €97 as Winter Reserves Lag

European wholesale gas prices reached €97 per megawatt-hour on Monday, the highest level recorded since 2022. The spike coincided with a drop in temperatures across the continent, which increased demand for heating. Traders adjusted their expectations for consumption in response to the colder weather.

The price trajectory stems from a combination of geopolitical uncertainty and physical supply constraints. Reports emerged that the United States and Israel were preparing for renewed strikes on Iran following the US midterm elections. This potential escalation pushed oil prices to $117 per barrel on Friday. Brent crude eased by approximately 2% on Monday but remains above $114 per barrel.

Europe is entering the winter season with gas storage at its lowest level in more than a decade. Current storage stands at approximately 75% of capacity, a figure that lags behind the seasonal average of 80%. The shortfall resulted from a slowdown in exports from Qatar and higher summer consumption, which was driven by the need to power refrigeration and cooling systems.

The United Kingdom faces specific headwinds due to its reliance on imports. Energy regulators expect the country to incur some of the highest energy costs in Europe this winter. The UK holds some of the smallest gas reserves on the continent, a consequence of decades of dependence on North Sea production. The Office for National Statistics reported that the country spent a record £4 billion on power imports in the year ending in August. Half of that expenditure went toward electricity imported from France.

Domestic infrastructure challenges have also added to costs. The UK made near-record payments to start up gas plants over the past year. Simultaneously, wind and solar farms were paid to switch off their output due to bottlenecks in the grid. These operational adjustments reflect the strain on the current energy mix.

Household bills are expected to reflect these wholesale increases. Energy costs are projected to rise by 16% in January. This adjustment would bring the typical annual dual fuel bill to approximately £2,000. The month-ahead contract in the UK rose by 4% to 240p per therm on Monday, marking its highest point since December 2022.

Equity markets responded positively to the slight dip in oil prices. The Stoxx Europe 600 index, which tracks the continent's largest firms, gained 0.3% in early trading. The UK's FTSE 100 index rose by 0.4% during the same period.