European gas prices hit another record as energy crunch continues

The European energy crunch intensified for yet another day on Tuesday, as the continent’s benchmark natural-gas futures contract hit a record high and the impacts of spiraling energy costs continued to cascade through every aspect of the region’s economy, threatening industrial production and stoking worries about critical gas shortages over the winter.

On Tuesday, the front-month benchmark Dutch TTF gas contract was above €100 (about $116), surpassing €107 per megawatt hour near midday—a jump of more than 14% on the day and its highest price ever. The nearly vertical rise in recent days shows just how much pressure is on the vital gas market, with storage levels now at their lowest in a decade—particularly concerning given storage is typically high ahead of the winter months.

Gas still plays a critical role for heating and industrial manufacturing in Europe and underpins the stability of the region’s energy mix, even as renewable power grows. But the energy crunch isn’t just limited to gas. Prices are rising nearly across the entire energy slate: Regional benchmark electricity prices are also rising, as are benchmark prices for coal, carbon emissions, and oil.

On Tuesday, the Europe-based Brent oil futures contract touched a seven-year high after members of OPEC agreed to only a minor hike to its production cap.

While every day seems to bring a new record for futures prices—and new stories of factories and plants that have to limit production, or of failing energy providers—the surge is the result of a perfect storm of both short- and long-term factors. On the demand side, the largest factor is the macro resurgence of demand as economies have boomed after COVID lockdowns ended. But there are also numerous factors on the supply side that have contributed to the constrained supply of gas: from suspected Russian slow-walking of its gas supplies to Europe, to shifting climate policies, to extreme weather, which has disrupted both transport and long-established seasonal patterns in how we buy and consume energy.

With so many factors collectively exacerbating the shortage, repairing single elements hasn’t been sufficient to ease worries. Prices have continued to rise despite reports this week that Russia’s Nord Stream 2 pipeline, intended to be a key—if controversial—long-term source of Russian gas to Western Europe, has started testing at least one of its pipelines. Another example is wind power. While calm skies were a contributing factor to energy shortages in recent weeks, the wind is blowing again. In the U.K. on Tuesday, wind power was contributing about 30% of the nation’s electricity mix, a proportion slightly higher than gas, according to the National Grid.

The energy crunch is not limited to Europe. China, too, is struggling with an energy shortage so severe it has curtailed industrial production and drawn government orders for suppliers to make sure they can cover winter consumer demand. Knowing they are not alone will be little consolation for customers in Europe, however; the cold of winter—and its energy bills—are right around the corner.