Natural gas falls to pre-Ukraine war prices
- Matt Phillips, author of Axios Markets
The first full cargo of natural gas arrives at the newly opened terminal in Wilhelmshaven, Germany, on Jan. 3. Photo: Sina Schuldt/DPA
European natural gas prices — which soared after Russia's invasion of Ukraine — have tumbled back to pre-war levels.
Why it matters: If sustained, declining gas prices could ease a series of inflation, cost of living and economic crises across Europe — and help preserve public support for the sanctions against Russia.
- Europe’s economic health, or lack thereof, also has consequences for one of its biggest trading partners — the U.S.
By the numbers: Benchmark prices for natural gas — using a Dutch gas trading exchange known as the Title Transfer Facility (TTF) — fell below €75 per megawatt hour Tuesday.
- They're down about 80% from their August peak of nearly €350.
Driving the news: The price drop is part policy, part good luck.
- European nations stockpiled significant amounts of natural gas from Russian sources before Russia shut down its key Nordstream 1 gas pipeline to Europe.
- Norway, Algeria, Qatar and the U.S. boosted exports of gas to Europe.
- A recent run of warm weather in Europe reduced heating demand.
- The European Union also moved in December to institute price caps on wholesale natural gas prices if they exceed certain levels.
The big picture: Russia's brutal invasion of its neighbor was a major shock to the European economy, which relied heavily on steady, affordable supplies of Russian natural gas to heat homes, illuminate cities and power factories.
- The war forced shutdowns among energy-intensive European industries, such as chemical and metal production.
- Countries nationalized utilities and spent billions to subsidize energy prices for households.
- Even so, prices have still surged for consumers, driving inflation sharply higher across the continent.
The latest: Fresh data out Tuesday showed German consumers, for example, paid 24% more for energy in 2022 than they did the previous year.
Yes, but: While Germany's inflation numbers were the largest year-on-year increase since the country reunited in the early 1990s, there was a glimmer of hope.
- Over a shorter timeline, price increases seem to be slowing fast — from over 10% in October and November, to 8.6% in December — largely due to the impact of falling energy prices.
- That was partly because of a one-time payment of consumer utility bills in December, the government statistical agency said, but gas futures prices were also down roughly 50% over that period.
The bottom line: The interaction of energy prices and inflation will continue to be a — or perhaps the — major economic issue to watch in 2023.