€97: European Gas Hits 2022 High as Winter Reserves Drop to 75%

European wholesale gas prices hit €97 per megawatt-hour on Monday, the highest level recorded since 2022. Traders pushed costs higher as temperatures dropped across the continent, increasing demand for heating before the winter season fully arrives.

Three factors are driving the current spike in energy costs across the region. First, European gas storage sits at approximately 75% capacity, the lowest level in over a decade. A seasonal average for this time of year is closer to 80%. Slower exports from Qatar and high summer consumption for cooling systems contributed to the deficit.

Second, markets are reacting to geopolitical risk in the Middle East. Reports indicate that the United States and Israel have prepared plans for renewed strikes on Iran following the US midterm elections. This tension drove oil prices to $117 per barrel on Friday. Although Brent crude eased by about 2% on Monday, it remains above $114 per barrel.

Third, the United Kingdom faces specific structural vulnerabilities. The month-ahead gas contract in the UK rose 4% to 240p per therm, marking its highest point since December 2022. UK energy regulators state that the country is poised to face some of the highest energy costs in Europe this winter. Britain relies heavily on imports and maintains some of the smallest gas reserves on the continent, a legacy of decades of North Sea domestic production.

British households face a 16% increase in energy costs in January. This hike is expected to bring the typical annual dual fuel bill to approximately £2,000. Recent data from the Office for National Statistics shows the UK spent a record £4bn on power imports in the year ending August. Half of that expenditure covered electricity imported from France. The country also made near-record payments to start gas plants while simultaneously paying wind and solar operators to curtail output due to grid bottlenecks.

Stock markets showed limited relief on Monday as the softer oil price offset some concerns. The Stoxx Europe 600 index gained 0.3% in early trading, and the UK's FTSE 100 rose by 0.4%.