European gas prices surged on the first trading day of the new year following the loss of Russian flows through Ukraine transit and the continent’s freezing winter temperatures. Benchmark front-month prices climbed as much as 4.3%, reaching €51 per megawatt-hour—the highest since October 2023.
This sharp rise comes in the wake of halted Russian gas deliveries through Ukraine, which ceased on January 1 after the expiration of a critical transit agreement. Without an alternative deal in place, the region is bracing for heightened uncertainty.
The halt in Russian gas flows across Ukraine is a substantial blow to several Central European countries that depend heavily on this route for their energy needs.
Inventories across the continent, which had been well-stocked leading into winter, are now depleting at their fastest rate since the onset of the gas crisis in 2021. This accelerated drawdown raises concerns about the ability to meet ongoing heating demands during the cold months ahead.
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Forecasts indicate sub-zero temperatures in many areas, with Slovakia—a country among the hardest hit by the supply cutoff—expected to experience lows of -7°C (19°F) by mid-January. Such weather conditions are expected to drive a sharp increase in heating demand, exacerbating pressure on gas reserves.
While Europe has diversified its energy sources over recent years, including significant imports of liquefied natural gas (LNG), challenges remain.
Russian pipeline deliveries to Europe now rely solely on a conduit through Turkey that supplies Hungary, making this route a critical focal point for traders and policymakers alike. Meanwhile, Europe continues to import record volumes of LNG, including shipments from Russia, which last year became the continent’s largest LNG supplier after the United States.
However, for landlocked countries like Slovakia and Hungary, importing LNG is a costly solution. The process involves transporting the gas by sea to ports in Germany, Poland, or Greece, regasifying it, and then delivering it overland—an effort that Slovakia estimates will incur an additional €177 million ($183 million) in expenses.
Walter Boltz, a senior energy adviser and former Austrian regulator, noted that while Europe is not facing an outright gas shortage, logistical constraints in moving fuel from west to east will result in price markups for central and eastern regions.
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Even though Europe is unlikely to run out of gas this winter, the rapid depletion of storage reserves is raising alarms for the next heating season. Gas prices for summer 2024 have already surged above those for the winter of 2025-26, signaling that restocking supplies will be both challenging and costly.
“There is an increasing risk that the EU will exit the winter with low gas storage levels, making it expensive to replenish them,” explained Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen.
This concern is heightened by the global LNG market, where Europe must compete with Asia for supplies, particularly during the summer months when air conditioning demand spikes. While new LNG production facilities are under construction globally, these projects will not add meaningful capacity for at least two more years, limiting the immediate options for boosting supply.
The immediate impact of these developments is already evident in market activity. Benchmark gas prices for February delivery in the Netherlands rose 3.1%, reaching €50.39 per megawatt-hour by early trading in Amsterdam. Futures had also surpassed €50 on December 31, reflecting market anticipation of the halt in flows through Ukraine.
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