European natural gas prices fall back to pre-Ukraine war levels

European natural gas prices have briefly dropped back to levels last recorded just before Russia’s invasion of Ukraine in February, thanks to lower demand for heating.

The month-ahead Dutch TTF gas contract dropped below €77 per megawatt hour yesterday – its lowest level in 10 months – before rising back to around $85 today, data from Refinitiv shows.

Unusually warm temperatures for this time of the year have helped countries in Europe to preserve their gas reserves.

European wholesale gas prices have fallen back drastically from their summer peak, when they hit over $340 per megawatt hour. 

UK gas prices have also eased since the summer, closing at 155p per therm yesterday, having soared above 500p per therm in August. 

Lower-than-usual demand for heating amid mild winter temperatures has helped European countries preserve their gas stocks, which are about 90 per cent full.

Consumption reduction targets have also helped to limit demand, with the EU member states agreeing to cut their gas consumption by 15 per cent compared to what they have used in the past five years.

Drop won’t mean lower energy bills for households 

But the drop in wholesale gas prices is not expected to result in cheaper energy bills for households in Europe or the UK, according to analysts.

Natural gas prices are expected to remain high in 2023 as there will be no cheap Russian gas on offer when countries go to restock supplies in the spring, according to Auxilione’s senior partner, Tony Jordan.

‘That does put some fear into what happens in 2023,’ he recently told This is Money.

‘It will keep prices up next summer, with an additional worry for next winter.’

Looking at the UK specifically, gas prices are also unlikely to return to ‘normal’ anytime soon, according to Nathan Piper, head of oil and gas research at Investec.

That is because Britain, which derives about 40 per cent of its electricity by burning gas, has become more reliant on higher price liquefied natural gas (LNG) imports, Piper wrote in Energy Voice.

Renewables became a bigger part of the mix last year, but so did fossil fuels, according to research published today by academics from Imperial College London for Drax Electric Insights.

Renewable power sources, which include wind, solar, biomass and hydro, generated 40 per cent of Britain’s electricity in 2022, up from 35 per cent in 2021, the report found. 

Overall generation from renewables has more than quadrupled over the last decade. 

But fossil fuels still have a larger share, providing 42 per cent of Britain’s power in 2022, which was its biggest contribution to the country’s fuel mix since 2016.

Britain, like other European countries, extended the life of coal-fired power plants to try to ensure adequate supplies during winter peak demand.

But it has significantly reduced its reliance on coal, with the National Grid saying that just 0.7 per cent of generation came from coal in November compared with 11.3 per cent at the same time in 2017.

On one day in May, renewables provided almost 73 per cent of power to the grid, the report said.