Gas prices in Europe hit the highest level in four years this week, with benchmark Dutch futures hitting €87.20 per megawatt hour (MWh). That is a 60% rise on where the price was only two months ago and three times the price seen before the conflict between the US and Iran began.

There is a confluence of factors driving the high cost of gas in Europe at the moment. Cold weather is expected across central Europe over the coming weeks, which will increase short-term demand.

This comes at a time when overall stockpiles of the fuel in Europe are at a 15-year low for this time of year. European gas storage is currently at 73.8% of capacity, with the five-year average for this time of year at 88.7%. If the coming weeks are cold and see the ending of stock building, the continent will be facing into the winter with stockpiles far below the 90% target level.

This means that Europe will have to rely more on supplies from the market over the winter months than it normally would, leaving it more exposed to market prices, but also increasing overall demand in the market over the coming months. Both Europe and Asia have become increasingly reliant on liquified natural gas (LNG) exports from North America following the effective closure of the Strait of Hormuz, which was responsible for much of the Asian market. The lack of gas from Russia means that two major suppliers have largely been cut off from the market.

There is very little chance of Europe running out of gas over the winter months, but what gas is available is likely to be significantly more expensive.

The good news, over the medium term, is that the current supply disruptions should prove relatively short-term. Both the US and Canada will bring more LNG production online over the coming two to three years which should help meet global demand. A resolution of the US-Iran conflict would also bring Middle East gas back to the market, which is critical for the Asian market.

However, right now, everything is pointing to gas prices remaining elevated over the winter months.

For Ireland, which has virtually no gas stockpiles at all, the price of gas feeds directly into electricity production. The fuel accounts for over 40% of the country’s electricity generation, so the recent spike in gas prices will most likely lead to fresh electricity price increases over the coming weeks and months.

The big effect for farmers from the gas-price spike in the wake of the Russian invasion of Ukraine was seen in fertiliser prices. While the current jump in gas prices is certainly severe, is it nothing close to the scale of the 2022 surge, which saw gas prices of more than €360 per MWh, more than three times even this week’s elevated level.

It is also worth noting that a winter gas-price increase comes at a good time for the Irish dairy processing sector which uses huge volumes of the fuel for drying milk. Due to Ireland’s grass-fed system the demand on dryers is a tiny fraction of the summer highs during the winter months.

As we explained on last week’s Down to AgriBusiness podcast, the bigger issue for fertiliser prices in 2027 is likely to be the Carbon Border Adjustment Mechanism (CBAM). However, if gas prices remain elevated into 2027, that, coupled with the CBAM, will inevitably see higher on-farm nutrient costs.

Comment

The increase in Irish domestic energy production from renewables between 2020 and 2025 was only enough to cover the drop-off in gas supplies from the Corrib gas field.

There will be no gas coming from that field in five years’ time, leaving Ireland with no domestic source of the fuel. The country also has zero reserves, though Gas Networks Ireland last year selected a site on the Shannon Estuary for a floating storage and regasification unit.

This winter, the cost of gas will be the issue for energy companies and their customers. However, over the longer term, Ireland needs to make some decisions about how it will manage its energy needs. With global LNG supplies expected to expand over the coming years, an LNG terminal for Ireland does seem like a necessary piece of infrastructure.

Not having any storage capacity means that if there was a disruption to the country’s gas import pipelines, then Ireland would run out of electricity within hours.