In August, and unusually during the summer season, European gas prices reached the highest in 10 years even exceeding levels seen in adverse weather conditions such as the Beast from the East in March 2018. There are many drivers – both economics and geopolitical factors – behind the increase, including a long winter in 2020 which eventually led to the drawdown of natural gas inventories (currently at 78% of normal levels) and higher demand in Asia which attracted spot LNG away from Europe. Add to that the low wind generation capacity which further increased demand for gas.
However, the driver that has attracted the biggest attention in the media is the deliberate supply restriction by Russia, reviving the debate on European energy security and the need to reduce reliance on Russian gas.
The current ‘crisis’ has also shed light on Europe’s energy transition agenda particularly the continent’s strong push for the adoption of renewable energy in power generation. However, as wind and solar could not compensate for the recent increase in demand for electricity, and in the light of higher gas prices, some European nations like Germany have turned to coal, diluting some of the EU’s green agenda efforts.