European countries need a milder winter to avoid last year's record gas prices as the bloc enters its second winter without Russian natural gas.

The EU has resorted to costly liquefied natural gas (LNG) cargoes to replace Russian gas, and according to John Roberts, an energy security specialist from the UK-based research platform Methinks, gas prices this winter will depend very much on weather conditions this winter.

A very mild winter like last year 'is crucial' for EU countries, he said.

Due to excessive heat, gas plant maintenance, and most recently, industrial action at significant LNG facilities in Australia, Europe's gas markets have experienced consistent volatility recently.

Such market unpredictability arose due to several energy crises that started with supply-demand instabilities after the COVID-19 pandemic and deepened with supply fears caused by the Russia-Ukraine war.

Russia unilaterally chose to stop gas flow via pipelines, with the exception of one in Ukraine, in response to harsh sanctions on its fossil fuel products and an explosion that devastated the Nord Stream 1 pipeline, which was Germany's primary supplier of Russian gas.

Since the eruption of the conflict, the already high gas prices have surged to the point where gas prices exceeded €300 per megawatt-hour in August last year, setting a new record high.

Low temperatures, the absence of any significant power outages throughout the winter, and EU initiatives to cut gas consumption dampened the upward price trajectory. Prices plummeted to €35 per megawatt-hour in August this year before falling to as low as €31 in September.

On the Dutch TTF, the virtual natural gas trading market with the most depth in the Netherlands, the gas price per megawatt-hour in October futures contracts reached €39.60 per megawatt-hour on Wednesday before closing the day at €37.28.

On Thursday, gas prices traded at €35.70 per megawatt-hour at 09.36 a.m. local time (0736 GMT), a 4.2% loss from the closing price on Wednesday.

'Last year, during the first half of the year, sufficient Russian gas flowed into the European Union to enable it to fill much of its storage facilities. We had an increase in supplies as new and refurbished LNG projects went online, and we had a relative low in demand from the Far East and Asia Pacific markets, as they weren’t yet recovered from COVID,' Roberts said.

However, he said this year the situation is different with great uncertainty as there is no Russian gas and relatively little new LNG has come online as the Asia-Pacific market has just recovered.

'This is a critical winter and if Europe gets through this winter, things will be better from then on,” he said.

-EU still buying Russian gas, but in LNG form

Due to their significant reliance on Russian gas, EU nations, which previously sanctioned Russian oil and coal but left out natural gas, have pledged to ban all Russian fossil fuels by the year 2027.

They also increased LNG imports by 60% in an attempt to compensate for lost Russian gas. Last year, the US provided 44% of all LNG imports for the EU, followed by Russia at 17% and Qatar at 13%.

Voicing discontent with the EU’s rising LNG dependence on Russian supplies, Kadri Simson, the European Union (EU) commissioner for energy, urged 'all companies and Member States to do their part' to reduce LNG exports from Russia to the EU, which over the past seven months amounted to 12.4 billion cubic meters.

Simson reaffirmed that there are no gas supply issues for the EU this year, saying,' Europe's position is much better than anyone would have predicted back then.'

She nevertheless warned member states to exercise caution in the event of hot summers, severe winters, unanticipated nuclear outages, or limited hydropower supplies that could cause market instability in light of the record-high gas prices last year.

'All of this could lead to a higher use of gas for electricity production here in Europe. For now, however, the outlook is much better than last year and looks stable,' she added.

- Europe's gas reserves are almost full

The occupancy rate of natural gas storages in Europe has exceeded 94%, according to information compiled from Gas Infrastructure Europe data on Thursday.

EU countries, which consume about 400 billion cubic meters of natural gas annually, have a natural gas storage capacity of around 113 billion cubic meters. The volume of gas currently in EU storage is 109.8 billion cubic meters.

In order to allay fears about the supply of gas, Roberts pointed out that natural gas from the Sakarya gas well in Türkiye and the Neptune gas field in Romania has improved the energy security of the EU by providing a more balanced market in southeast Europe and by making up for the lack of Russian supplies.

- Increasing LNG trade creates price and supply security problems for EU

Brenda Shaffer, a professor at the US Naval Post-Graduate School, said significant gas 'demand destruction' in Europe has pressured the downward movement of gas prices.

'Many energy-intensive industries in Europe collapsed or relocated to places with cheaper energy prices, like the US. Thus, due to the decline in economic activity, there is also now a built-in decline in demand for gas and electricity. On the flip side, Asian LNG imports are anticipated to be robust over the next few months, and thus this demand will raise the price of cargoes available to Europe as well,' she said.

Shaffer emphasized how the conflict between Russia and Ukraine revived pipeline gas traffic, particularly to Europe.

'Consumers all over the world came to understand the danger of competing for LNG supplies, both in price and security of supply,' Shaffer said.

'It made no sense for Europe, which sits next to the largest gas supplies in the world, to forgo pipeline gas and tie itself to less secure and higher-cost LNG.'

By Sibel Morrow

Anadolu Agency

energy@aa.com.tr