European gas prices hit 2022 peak as winter storage runs low

European wholesale gas prices reached €97 per megawatt-hour on Monday, a level not seen since 2022. The sharp increase followed a drop in temperatures across the continent, which traders say will boost demand for heating. This price point matches the highs observed during the surge in energy costs following Russia's invasion of Ukraine.

In the United Kingdom, the month-ahead gas contract climbed 4% to 240p per therm. This marks the highest level for that specific contract since December 2022. UK energy regulators have warned that Britain faces some of the highest energy costs in Europe this winter due to its heavy reliance on imported supplies.

Market volatility is also fueled by geopolitical tensions in the Middle East. Reports indicate that the United States and Israel have prepared plans for new strikes against Iran, scheduled to occur after the US midterm elections. These reports pushed oil prices to $117 a barrel on Friday. While the Brent crude benchmark eased by about 2% on Monday, it remains above $114 a barrel.

Europe enters the winter season with gas storage levels at their lowest point in more than a decade. Current storage stands at approximately 75% capacity, below the seasonal average of 80%. This shortfall results from a slowdown in exports from Qatar and high summer consumption used for refrigeration and cooling systems.

The UK's dependence on imports is compounded by limited domestic reserves. Decades of reliance on North Sea production have left the country with some of the smallest gas stores in Europe. According to the Office for National Statistics, the UK spent a record £4 billion on power imports in the year leading up to August. Half of that expenditure covered electricity imported from France.

The energy sector has also incurred high operational costs in recent months. The country made near-record payments to activate gas plants while wind and solar facilities were paid to shut down due to grid bottlenecks. British households are expected to see a 16% increase in energy costs in January. This rise will bring the typical annual dual fuel bill to approximately £2,000.

Financial markets showed slight gains on Monday as the softer oil price provided some relief. The Stoxx Europe 600 index, which tracks the continent's largest companies, gained 0.3% in early trading. The UK's FTSE 100 index rose by 0.4% during the same period.