Europe is heading into its coldest winter since the beginning of the war in Ukraine, with temperatures expected to stay below the levels seen in the past two years, according to the European Centre for Medium-Range Weather Forecasts. This shift is likely to drive heating demand to its highest level since Russia's invasion, with further pressure on energy supplies. Despite this, temperatures are still predicted to remain slightly above seasonal norms. However, the continent's energy situation remains precarious, as the cold weather could lead to higher gas and electricity prices, particularly given the risk of disruption in gas supplies.

The forecasts suggest that freezing temperatures, combined with low-wind conditions, are already triggering faster-than-usual withdrawals from Europe's gas storage sites. As of now, gas reserves are approximately 88% full, but the rapid consumption could leave Europe vulnerable in late winter and during the upcoming summer replenishment season. A significant concern is the potential halt in gas flows through Ukraine, which could start on January 1 when temperatures typically dip to their lowest levels. This adds another layer of uncertainty to Europe’s energy security.

Additionally, the situation is compounded by escalating tensions in Ukraine, which further threaten European energy stability. The volatility in the region is heightening concerns over future gas supplies, especially as Moscow and Kyiv intensify their military operations. A potential halt in Russian gas flows through Ukraine at the end of the year, coupled with the expiration of a deal to transit gas, has yet to be resolved, leaving Europe with no clear alternative for continued supply.

Meteorologists are also monitoring the possibility of a Sudden Stratospheric Warming (SSW) event, which can weaken the polar vortex and lead to colder-than-usual temperatures in parts of Europe. While Maxar Technologies forecasts milder conditions for northern and central Europe, southern regions, including Italy and the Balkans, could experience colder weather. This would further exacerbate the energy demand in those areas. Meanwhile, in places like Oslo, temperatures are expected to fall significantly below average, with a forecasted low of -12C on December 8, triggering a sharp rise in heating demand.

The threat of colder weather has already caused European natural gas prices to rise, with futures climbing nearly 20% since the beginning of November. As the weather pattern shifts, the pressure on energy supplies continues to mount, with traders keeping a close watch on the situation. The ongoing disruptions in global supply, including the unplanned outage at Woodside Energy's Pluto LNG facility in Australia, are also contributing to the tightening of the global energy market.

Background:

The risk of an energy crisis in Europe has been exacerbated by the ongoing war in Ukraine, which has disrupted regular gas flows from Russia. As European countries work to diversify their energy sources, the war has led to rising energy prices and growing uncertainty. The continent is now facing a particularly challenging winter, with cold weather forecasts and potential disruptions to gas supply further heightening the stakes for energy security. The gas supply situation is already critical, as seen with the early depletion of storage reserves and the looming risk of interrupted Russian gas shipments.

Sources:

• Bloomberg
• Rigzone