European natural gas prices fall back to pre-Ukraine war levels

European natural gas prices briefly fell to levels last recorded just before the Russian invasion of Ukraine in February, thanks to lower demand for heating.

The monthly Dutch TTF gas contract fell below €77 per megawatt-hour yesterday – its lowest level in 10 months – before rising again today to about $85, data from Refinitiv shows.

Unusually warm temperatures for this time of year have helped countries in Europe maintain their gas reserves.

European wholesale gas prices have fallen dramatically from their summer peak, when they reached more than $340 per megawatt-hour.

Gas prices in the UK have also fallen since the summer, closing at 155p per therm yesterday after rising above 500p per therm in August.

Lower-than-usual demand for heating in mild winter temperatures has helped European countries maintain their gas supplies, which are about 90 percent full.

Consumption reduction targets have also helped curb demand, with EU member states agreeing to reduce their gas consumption by 15 percent compared to what they have been using over the past five years.

A decrease does not mean a lower energy bill for households

But the fall in wholesale gas prices is not expected to lead to lower energy bills for households in Europe or the UK, according to analysts.

According to Auxilione’s senior partner Tony Jordan, natural gas prices are expected to remain high in 2023, as there will be no cheap Russian gas on offer when countries start replenishing supplies in the spring.

“That does give some anxiety about what will happen in 2023,” he recently told This is Money.

“It will keep prices high next summer, with an extra concern for the coming winter.”

Looking specifically at the UK, gas prices are unlikely to return to ‘normal’ anytime soon, said Nathan Piper, head of oil and gas research at Investec.

That’s because Britain, which gets about 40 percent of its electricity from gas combustion, has become more dependent on higher-priced liquefied natural gas (LNG) imports, Piper wrote in Energy Voice.

Renewable energy became a bigger part of the mix last year, but so did fossil fuels, according to research published today by academics at Imperial College London for Drax Electric Insights.

Renewable energy sources, including wind, solar, biomass and hydropower, will generate 40 percent of Britain’s electricity by 2022, compared to 35 percent in 2021, the report found.

Total generation from renewable energy sources has more than quadrupled in the last decade.

But fossil fuels still have a larger share, supplying 42 per cent of Britain’s electricity by 2022, which was the largest contributor to the country’s fuel mix since 2016.

Britain, like other European countries, extended the life of coal-fired power stations to try to ensure adequate supplies during the winter peak demand.

But it has significantly reduced its reliance on coal, with the National Grid saying just 0.7 percent of its generation came from coal in November, compared to 11.3 percent at the same time in 2017.

On a single day in May, renewables supplied nearly 73 percent of power to the grid, the report said.