European gas crunch: Calm before the storm?

Europe continues to battle high gas prices, though the panic that swept the continent in October eased in November. There is a well-known saying in commodity markets: the cure for high prices is high prices. This helps explain recent trends. High prices are gradually attracting additional supplies, while customers look for cheaper alternatives, including coal in power generation – regardless of climate change concerns. Over time, the longer high prices persist, the stronger the signal will be for more investment in gas production and other infrastructure. Of course, the most unpredictable factor remains the weather.

The crisis has shed light on the significant influence Russia still has on the European gas market, despite the European Union’s deliberate attempts to weaken its sway over the years. Russia is still the biggest exporter of natural gas to Europe. The crisis, however, has brought competing sources of supply on the continent, a trend that will intensify in the coming years. In gas markets, much more than in oil markets, political and commercial interests are closely intertwined.