Power Up: Trump's Ukraine gambit stirs gas market

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Feb 13 - By Ron Bousso, Energy Columnist

Hi everyone! Ron Bousso here. I recently joined the Reuters commentary team as Energy Columnist after covering the world's top energy companies for over a decade. I am looking forward to sharing with you my thoughts on this fascinating sector.

Europe's natural gas market is heating up. On Monday, regional gas prices soared to their highest in two years on growing concerns over diminishing inventories, only to tumble by over 9% following news on Wednesday of U.S. President Donald Trump’s efforts to reach a ceasefire in the Russia-Ukraine war.

Europe’s gas market heats up

European gas inventories have declined sharply this year, due to a combination of cold weather, reduced wind turbine power generation from low wind speeds, and the discontinuation of the last major gas pipeline linking Russia to Europe. Storage levels this week fell to 47% of capacity, far lower than the 67% recorded at this time last year, and also below the five-year average.

These tightening supplies pushed benchmark European TTF gas prices to a two-year high of 58 euros per megawatt hour (MWh) on Monday. That fueled fresh concerns about the competitiveness of European industries versus their U.S. and Chinese rivals, particularly as the spectre of a global trade war intensified following the U.S. president’s announcement that he was imposing a 25% tariff on steel and aluminum imports.

But another Trump move then pushed prices in the opposite direction. News of the president’s call with Russian President Vladimir Putin led to a rapid retreat in TTF prices, which, on Thursday, were down 9% from the Monday highs.

The decline was driven primarily by speculation that a settlement of the conflict in Ukraine would lead to at least a partial resumption of Russian pipeline gas flows to Europe. These supplies dropped sharply following Moscow's invasion of Ukraine in February 2022. At its peak in 2019, Russia supplied over one-third of European gas demand. That figure had fallen to around 5% last month.

But resolution of the Ukraine conflict is far from assured, and even if a ceasefire were reached, it is unclear exactly what that would mean for energy markets. But what is clear is that these geopolitical shifts are likely to generate further volatility in gas prices.

GAS RULES

While volatility increases, European Union regulations are complicating matters in the gas market.

The European Commission is preparing a package of measures, due to be proposed on February 26, to improve the region’s industrial competitive edge and help bring down energy prices. Those might include a new cap on gas prices to protect consumers and businesses from energy price spikes. The previous cap imposed during the 2022 Russian gas crisis expired at the end of January.

Europe's gas and energy trading industries have urged Brussels not to impose these price controls.

A cap would have "far-reaching negative consequences for the stability of European energy markets and the security of supply across the continent," the industry groups said in a letter to European Commission President Ursula von der Leyen.

It is unclear how the EU will respond but, either way, things are already getting messy.

And now that more Trump-related uncertainty has been added to the mix, it is safe to say that things might get a whole lot messier in the coming months.

ESSENTIAL READING

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Russia may be forced to throttle back its oil output in the coming months as U.S. sanctions hamper its access to tankers to sail to Asia and Ukrainian drone attacks hobble its refineries, write Anna Hirtenstein and Florence Tan.

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Companies that committed to investments in U.S. offshore wind infrastructure and supply chains are scrapping their plans as the projects they were meant to serve face huge setbacks, including President Donald Trump's plan to end federal support, Nichola Groom writes.

Wind-powered electricity production across Europe dropped by over 7% in January from the same month in 2024, depriving regional power producers with a key source of clean energy right when demand for heating neared its annual peak, writes Reuters columnist Gavin Maguire.

Asia's crude oil markets are adjusting rapidly to new sanctions against top supplier Russia, sucking up cargoes while they can and moving to alternatives for deliveries in coming months, writes Reuters columnist Clyde Russell.

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