Europe gas and power markets short-term outlook Q1 2022

Military escalation in Ukraine is piling up pressure on a European gas market that was already going through the worst crisis on record. Recently, supply conditions have improved, with higher LNG imports and milder weather propping up storage levels. But gas prices are inevitably going up as traders price-in the risk of potential Russian supply disruption. We assume Russian flows will remain consistent with recent imports and dictated by contractual obligations. Our analysis suggests this will be sufficient to ensure storage levels be filled up to a high level by the end of injection season in 2022. However, 2023 will be more challenging. Continuous decline of indigenous production coupled with lower availability of LNG for Europe will tighten the market further. If Russian flows remain limited to contracted obligations, our analysis shows storage levels could not reach its potential level in 2022 ahead of the winter 2023/24. Inevitably, prices will remain high in 2023.