European Natural Gas Prices Near Monthly Highs

European natural gas prices are approaching their highest levels for the month, driven by a faster-than-normal depletion of storage and the upcoming end of the gas transit agreement between Ukraine and Russia.

In early trading on Monday, benchmark futures rose up to 2.5% before slightly easing. Prices are just under €48 per megawatt-hour, close to December's peak, as traders consider the potential impact of reduced Russian gas supplies in the coming year.

The gas transit agreement is set to end on January 1, coinciding with predicted colder weather across much of Europe, which could increase demand for heating gas. The region's gas inventories are being depleted more quickly than usual, leading to higher costs for traders to secure adequate gas supplies next year, particularly as they compete with Asia for seaborne supplies.

In Central Europe, Slovakia continues to purchase Russian gas and is advocating for its continued flow through Ukraine. However, Ukrainian President Volodymyr Zelenskiy has rejected any deals that involve payments to Russia amid the ongoing conflict.

Slovak Prime Minister Robert Fico has urged the European Commission to address the imminent gas supply halt, indicating the significant economic impact on the EU compared to Russia. He warned that European households and businesses could face increased bills in his letter to European Commission President Ursula von der Leyen.

The at-risk gas supplies account for about 5% of European demand, which, though small, necessitates greater reliance on Norwegian piped gas or U.S. liquefied supplies should these volumes be lost.

At 8:55 a.m. in Amsterdam, Europe's gas benchmark, the Dutch front-month futures, saw a decrease of 0.798% to €47.35 per megawatt-hour.

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