01-Mar-24 Energy

Europe has overcome its energy crisis

More secure supply brings gas prices back down

The fears were great, but Europe has mastered its energy crisis impressively. Gas prices have largely returned to normal after the dramatic rise following Russia's invasion of Ukraine.[1] And the current gas storage level of just over 70%[2] indicates there will likely be no supply bottlenecks next winter.

Energy conservation has been key to this success. European industry has been able to consume more than 20% less gas in 2023 than in the 2019-21 period.[3] Households have reduced their gas consumption by the same amount. Meanwhile, industrial production has hardly suffered. In the Eurozone, it has actually increased by just under 3%.[4]

Sustainable recovery in European gas price

Sources: Haver Analytics, DWS Investment GmbH as of 2/27/24

Comparatively high inventories are not the only reason we are confident about the future. Europe has built up massive capacities to convert liquefied natural gas back into gas. Liquefied natural gas terminals are being built on a large scale around the world, especially in the U.S., so Europe should be able to obtain supplies from "friendly" countries in the future. A near-complete decoupling from Russia should therefore be possible in the years to come.

Where prices are concerned, looking at the Dutch gas price in relation to its U.S. counterpart, we can see that the statistical Z-score[5] – in simple terms, the deviation from the mean – is now back below zero. This means that European gas has not only largely recovered from the distortions caused by the war in Ukraine but has also moved closer to the lower U.S. gas price level.

All in all, this is a great success for Europe. It has avoided the profound crisis that was feared and has made itself largely independent of Russian gas. At the same time, important steps have been taken to advance the energy transition. In recent months, politicians have set the guard rails to fundamentally restructure Europe’s energy supply. We expect this to further decrease Europe’s vulnerability to geopolitical turbulence.

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1. Bloomberg Finance L.P., DWS Investment GmbH as of 2/27/24

2. See the latest gas storage level from GIE (Gas Infrastructure Europe) as of 2/27/24

3. See Bruegel European natural gas demand tracker as of 2/27/24

4. Eurostat, DWS Investment GmbH as of 2/27/24

5. The Z-score refers to the number of standard deviations by which a data point deviates from a defined mean value (in this case this is the mean during the period of two years before the outbreak of the war in Ukraine) – see a definition of the Z-score by omni calculator; data as of 2/27/24

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