European Gas Hits Record Highs: Winter Bills Spike

European gas markets are pricing in a costly winter.

Wholesale gas prices climbed to €97 per megawatt-hour on Monday. This figure represents the highest level seen since 2022. In the UK, the month-ahead contract increased by 4% to reach 240p per therm. Traders noted that falling temperatures across the continent have driven up demand for heating.

Market volatility is also driven by geopolitical tensions in the Middle East. Reports indicate that the US and Israel have prepared plans for new strikes against Iran following US midterm elections. These reports pushed oil prices to $117 a barrel on Friday. The Brent crude benchmark dropped by roughly 2% on Monday but remains above $114 a barrel.

Storage levels in Europe are at their lowest point in over a decade. Current storage stands at approximately 75% capacity, which is below the seasonal average of 80%. A slowdown in exports from Qatar contributed to this drop. Additionally, high summer consumption for cooling and refrigeration reduced available reserves.

Britain faces higher costs than its European neighbors. Energy regulators state that the UK relies heavily on imports to maintain supply stability. The country possesses some of the smallest gas stores in Europe after decades of dependence on North Sea production. The Office for National Statistics recorded that the UK spent a record £4 billion on power imports in the year ending in August. Half of this total covered electricity imported from France.

The grid has also faced operational challenges. The country made near-record payments to start gas plants over the past year. Simultaneously, wind and solar farms were paid to stop generating power due to grid bottlenecks.

Households in the UK expect to pay more in the coming months. Energy costs are predicted to rise by 16% in January. This increase would bring the typical annual dual fuel bill to the equivalent of about £2,000. Stock markets showed slight gains on Monday as softer oil prices provided some relief. The Stoxx Europe 600 index rose by 0.3%, while the FTSE 100 gained 0.4% in early trading.