Natural gas prices in Europe fell at the end of 2022, with the benchmark European contract, the Dutch Title Transfer Facility, priced at €76 ($80) per megawatt hour (MWh), close to pre-Ukraine war levels of €75 in December 2021.
Just a short time before that in August, EU prices jumped to an all-time high of €350/MWh due to shortages caused by Russia curtailing supplies.
Is it over yet?
Experts say the worst is over for now, with gas prices coming down from historic peaks. "However, that doesn't mean the energy crisis is over," Toby Copson, global head of trading at Trident LNG, told DW.
And next winter may well be harder, with little Russian supply to fill up storage. Russia provided 60 billion cubic meters of gas to Europe in 2022, about half of what was contracted.
"How hard it will be will depend on the weather, Chinese demand and LNG availability," said Adi Imsirovic, a senior research fellow at the Oxford Institute for Energy Studies.
A number of factors are at play keeping Europe in a better position than they were last year: milder temperatures than usual, reduced heating demand, a high storage rate and more supply available due to a mostly absent China from the spot market.
Yet this could change dramatically if the weather shifts and storage starts to be depleted. "On top of that you have the added concern of the Chinese emerging out of the COVID surge and returning to being a demand player — all of which would leave Europe competing for what's available with one of the largest buyers in the market," said Copson.
Weather is crucial
The weather will play a crucial role. "For now, it looks good, but the International Energy Agency took into account another cold snap at the end of March in its winter outlook. So we're not out of the woods yet," Bram Claeys, a senior adviser at the Regulatory Assistance Project, a non-partisan organization focused on the green transition, told DW.
"However, the forecast is for Europe to exit the winter with less than 15% in storage (versus the historic 30-35%) and this will result in prices remaining above historic levels as demand is higher to refill storage," said Ashley Kelty, director of oil and gas at Panmure Gordon, a corporate investment banking company.
Gas price predictions
Experts believe prices will remain elevated for at least a couple of years until demand comes down and there is more supply from the US.
"I don't think gas prices will revert to historic levels for the foreseeable future. This is down to LNG being more costly, the lack of supply from offshore gas in Europe and the absence of Russian supplies," said Kelty.
The wind has been helpful lately for renewable energy, and in Belgium the Tihange 1 nuclear reactor is back online. But this, too, can quickly change. "The underlying structural reasons for the high prices remain in force. The war in Ukraine is far from over, the gas supply from Russia has been and remains decimated, and the French nuclear park is still largely in the doldrums," said Claeys.
"The price has come down from its late-2022 highs, but characterizing €77/MWh as a price level that indicates things are good is a mischaracterization. But I guess it is all relative," said Ken Medlock, coauthor of a recent report on the EU gas sector.
Europe's gas storage relatively healthy
As of early December, Europe's gas storage levels were about 92% full, a high level for the time of year and near to 10-year highs due to milder weather conditions heading into the winter.
The gas storage levels in most EU countries are well above their five-year averages, but key questions depend on how European reserves will be refilled after winter, assuming Russian supplies aren't resumed.
Goldman Sachs expects storage facilities to remain at least 20% full by the end of March 2023, while energy research consultancy Wood Mackenzie said an unusually cold winter in the Northern Hemisphere could reduce European gas inventories to 4% of total capacity by March.
China is the wild card
An important factor is China and how the COVID wave there will affect the economy and the demand for gas in Europe.
"We were able to fill our reserves last year, partly because demand for LNG in China was low. This may change and have consequences for Europe's ability to attract sufficient LNG ahead of next winter," said Claeys.
China National Offshore Oil Corp has forecast that China's natural gas imports will be 7% higher year on year in 2023. The additional demand could test Europe's efforts to bring in more cargoes, as buyers there work to restock inventories for the next winter without Russian imports.
Is the price cap a block?
The EU decision to cap gas prices could jeopardize the bloc's efforts to refill storage inventories this summer, experts warn.
EU members supported the price cap as a way to limit Russia's influence over the EU gas market. Some countries are spending billions of euros to limit the impact of rising energy prices on households.
The cap would be triggered if the month-ahead Title Transfer Facility contract moves over €180/MWh for three consecutive business days. If activated, the cap would stay in place for at least 20 working days.
Critics say the price cap would allow Asian buyers like China and India to become more competitive in the spot market.
"The economic ripple effects can be actually quite problematic for the long term," said Anna Mikulska, an energy expert at Rice University in Houston, Texas.
"While the gas availability issue is acute, the chronic effect of it may be flight of energy-intensive and especially gas-intensive industries and relocation where prices are likely to be lower," she told DW.
Others experts have focused on the political fallout.
"In 2023 it remains imperative for EU leaders to not succumb to Russian energy weaponization, and to instead support Ukraine with as much military and humanitarian aid as is needed to achieve Ukraine's stated goals of the full restoration of its sovereignty and territorial integrity," said Benjamin L. Schmitt, research associate at Harvard University and senior fellow at the Center for European Policy Analysis.
Edited by: Tim Rooks