Europe Natural Gas Prices Susceptible to External Disruption
Draghi report calls for more regulations to halt excessive volatility in natural gas prices

Efforts by the European Union (EU) to protect the bloc’s natural gas supplies from external disruptions, an objective that gained more urgency after Russia’s invasion of Ukraine more than two years ago, have yet to prevent price instability.
A September 9 report, headed by former European Central Bank (ECB) chief and Italian prime minister Mario Draghi, called for greater regulations to reduce the risk of excessive volatility in natural gas prices and to stabilize markets. It pointed to new rules that apply uniformly to spot and derivative energy markets.
A day after the report landed, natural gas prices in Europe declined 5% to a six-week low due to hedge fund selling. Then, on September 11, natural gas prices swung back, rising by 2.4% on reports of fighting near a key energy node in Ukraine and on hurricane Francine barreling through the Gulf of Mexico.

“The EU’s competitiveness gap compared vis-à-vis its trade partners is not only related to very high prices, but also to the high level of volatility and the unpredictability of prices in the EU compared to other world regions,” the Draghi report said.
Hedge Funds Drive Volatility
Hedge funds were blamed for the sharp decline in natural gas prices earlier this month, as they closed positions, according to an LNG trader. They exacerbated the downward pressure, caused by fragile fundamentals, making it hard to “trade when supply is greater than demand," the trader said.
Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of technology and data, announced on September 11 record liquidity across its global natural gas futures markets, including record open interest in the U.S. gas futures and options markets and record open interest in Dutch Title Transfer Facility (TTF) futures.
“The increasing interconnectedness of natural gas around the globe, driven by the liberalization of LNG, has implications for natural gas trade, pricing, and the way market participants think about risk,” Trabue Bland, SVP, Futures Markets at ICE, said.
New Energy Trading Rules
The ongoing volatility has sparked calls for new rules to control speculative trading in the energy market. The European Commission report by Draghi called for stricter controls to be given to EU regulators to combat these risks of amplified volatility and price shocks.
"Following the US example, regulators should be able to apply financial position limits as well as dynamic caps in circumstances when EU energy spot or derivatives prices diverge markedly from global energy prices," the Draghi report said. "The EU should also put in place a common trading rulebook applying to both spot and derivatives markets and ensure integrated supervision of energy and energy derivatives markets."
The US has introduced circuit breakers to temporarily halt trading across all exchanges when a specific security or market index moves too much in either direction. They are meant to slow down panic selling or panic buying when the security or market index moves a certain pre-set percentage.
The Draghi report issued a stark warning about EU competition. It found that economic growth in the EU lagged behind China and the US, threatening the bloc’s goals of bolstering its geopolitical relevance, social equality, and decarbonization.
Hurricane Francine
While hedge-fund selling has weighed on prices, supply fundamentals have reversed those losses and pushed prices higher.
Prices increased as Hurricane Francine barreled through the Gulf of Mexico, hitting Louisiana as a Category 2 hurricane on September 10. The next day, the hurricane shut in 42% of crude oil production and 53% of natural gas output in the U.S. Gulf.
Deliveries to the Cameron LNG in South Louisiana declined by 60%, totaling 1.3 billion cubic feet per day.
The hurricane led to substantial disruptions in natural gas and LNG operations, with approximately 755 million cubic feet of production remaining offline in the aftermath, equal to 41% of all US Gulf of Mexico natural gas production, according to the energy regulator.
Russia-Ukraine War
European efforts to wean itself off of Russian energy supplies have also faltered, despite noting that Moscow’s invasion of Ukraine “highlighted the EU’s over-dependence on a single, unreliable supplier for almost half of its gas imports.”
Russian LNG imports to Europe, particularly France, Spain and Belgium, have increased 11% during the first half of 2024, making Russia the second-largest exporter behind Norway, according to the State of EU energy union report.
“Despite the EU agreeing to ban transshipments of Russian LNG by March 2025, EU ports’ transshipments of the fuel from Russia’s Yamal terminal increased 15% year on year in H1 2024,” Ana Maria Jaller-Makarewicz, lead energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said.

Volumes of Russian gas passing through Ukraine also posed a risk last month after intense fighting near the key Sudzha intake point.
Russian energy corporation Gazprom (GAZP.MM) has continued transiting gas through the point, maintaining similar levels as before.
Although Russian gas supply crossing Ukraine now covers less than 5% of Europe’s fuel needs, the market is still sensitive to news on potential disruptions.
Diverging Forecasts
According to the ECB’s macroeconomic projections for the euro area released on September 12, natural gas prices are expected to increase by around 17% over the projected period due to geopolitical risks such as the Ukraine war and tensions in the Middle East.
The Bank anticipates that energy inflation, which includes natural gas, will have a muted impact over the medium term. However, it sees upside risks to the assumptions as it considers various forecast factors, including fiscal and monetary policies and a stronger euro, which it expects to rise by 1.7% against the U.S. dollar.
The International Energy Agency (EIA), on the other hand, forecasts a relatively flat natural gas price of around $2.00 per MMBtu through the end of the year and an increase to $3.10 per MMBtu next year due to expected increases in LNG exports.

The EIA explained in its short-term energy outlook, known as STEO, that its forecast might be influenced by external factors such as the effects of weather-related disruptions and geopolitics.