According to the European Commission, the jump in LNG prices on Asian markets and low stock levels in Europe after the winter are the main factors behind the increase in gas prices in Europe. In its quarterly gas market report, the EC also points to higher demand and a decline in its own production.

Spot prices on European hubs (gas trading hubs) in the first quarter of this year were on average 25-30% higher than a quarter earlier. On an annual basis, however, they were 70-100 percent higher than at the beginning of 2020. On average, 18-20 euros per MWh were paid at the spot. On an annual basis, prices for households increased by an average of 9 percent in Q1.

As a reason for this, the Commission first pointed out in the report a strong jump in gas demand in Asia at the beginning of the year. This resulted in rising prices and the attractiveness of that market for LNG exporters. As a result, gas from the spot market flowed to Asia, which momentarily translated into a decline in LNG imports to the EU. In Q1 2021, it amounted to 29 percent compared to Q1 2020. LNG imports to the EU amounted to 17 bcm, with the US being the largest supplier.

The next factor highlighted was consumption, significantly higher than a year ago. While EU GDP was still 1.2 percent lower than a year ago, gas consumption increased by 7.6 percent or 10 bcm. There was higher electricity generation from gas and higher consumption for home heating, due to teleworking.

Meanwhile, in the first three months of 2021, own gas production fell nearly 14 percent year-over-year and was the lowest in a decade. Additional pipeline imports were covered 45 percent by Russia and 23 percent by Norway. Imports from Algeria doubled during the year.

Finally, the last of the most important factors cited for price increases was low inventory levels. After the winter, the stock of European gas storage facilities amounted to only 30 percent. This means increased demand for gas in the next two quarters, as the volume injected into storage facilities to rebuild stocks before the winter is higher than usual.


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