Ukraine one year on: is Europe’s energy crisis over?

  • Valentina Romeo - content lead for Europe at Schroders Investment Management (SIM)
  • 24 February 2023
  • 15 mins reading time

Alongside the ongoing devastating human consequences of Russia’s shocking invasion of Ukraine a year ago, the invasion prompted a crisis in wider Europe.

From a financial markets point of view, the invasion was mainly felt via upward spiking energy prices as Western nations imposed sanctions on Russian oil and Russia later cut off natural gas supplies.

This article focuses on mainland Europe, rather than the UK, because although prices have risen in the UK, it has been less affected by the energy crisis than other European countries. This is because it has lower reliance on Russian energy than other European countries. For example, only 3 per cent of UK gas imports came from Russia in 2021, compared with 24 per cent for France, 47 per cent for Germany and 99 per cent for Finland (1). The UK’s low dependency on Russian energy is largely down to the UK’s domestic renewable energy sources and North Sea oil, and to gas supplied via pipeline from Norway.

Lack of access to Russian gas meant Europe, especially Germany, Austria, the Netherlands and Italy, had to seek other sources of energy. This proved expensive. Natural gas prices soared, particularly in September 2022, on investor fears of potential gas shortages and power cuts in the coming winter.

European gas drops to the lowest level since September 2021

Source:, Natural Gas EU Dutch TTF (EUR/MWh), January 2020 to February 2023. The green line shows the price of gas at the time of writing.

However, as the chart above shows, Europe’s natural gas price has since fallen sharply. This is due to a number of factors, including a relatively mild winter.

Another factor is that several European countries have taken steps to reduce demand. The below chart shows how demand for gas in Germany has fallen. The chart shows the monthly change in gas consumption of all gas customers compared to the average of 2018-21.

Europe reduces gas consumption

Source: Trading Hub Europe (THE), Federal Network Agency, February 2023.

Milder weather, reduced demand and the purchase of gas from other sources, often liquified natural gas (LNG) cargoes, meant that Europe has avoided power cuts and has rebuilt its gas storage to healthy levels. LNG is natural gas that has been cooled into a liquid form for ease of transportation.

Fill levels remain at around 80 per cent across Europe as of January 2023. This is in line with EU rules that demand an 80 per cent minimum storage over this winter.

The chart below shows the gas storage levels now in Germany compared to the previous year. Total storage level in Germany is 73 per cent, which is more than double a year ago. It reached 100 per cent in November 2022.

Reduced chance of running out of gas this winter in Europe

Source: AGSI+, Federal Network Agency, February 2023.

The sharply rising gas price also had a significant impact on the European economy, sending inflation to double-digit levels. As gas prices tumble, inflationary pressure should ease, although other components, such as food prices, are still rising.

Euro area annual inflation and its main components, January 2013 to January 2023 (estimated)

Source: Eurostat (online data code: prc_hicp_manR). Past performance is not a reliable indicator of future results

Azad Zangana, senior European economist at SIM, said: ‘The natural gas price in Europe has been a large contributor towards higher inflation rates over the past year. At the latest European Central Bank (ECB) meeting, policymakers noted the significant falls in prices since the end of 2022 will be a very helpful factor in lowering inflation rates later this year.

‘The ECB has already signalled that it will raise rates again in March by another 50 basis points. However, it has stated that from March it will “…evaluate the subsequent path of its monetary policy” – potentially creating an opportunity to pause rate rises. Our expectation is that interest rates will be kept on hold from that point on.’

So, power cuts have been avoided, gas storage levels have been replenished, and energy prices are falling which reduces the need to put up interest rates further. Is this the end of the energy crisis facing Europe?

Unfortunately, the story may not be that simple.

Last year, Europe could still count on the supply of Russian gas for a few months early in the year; that is not the case now. Also, some of the reduced demand for energy was due to mild winter weather and there is no guarantee of a repeat this coming winter.

Mark Lacey, head of global resource equities at SIM, said: ‘Europe has met much of its need for non-Russian energy supply by buying up LNG cargoes. This comes as a cost given that other countries are also seeking to buy extra LNG, partly because it is less polluting than alternatives such as coal.

‘What’s more, 2022 saw limited demand for LNG from China, given how economic activity was constrained by Covid lockdowns. China’s economic recovery will mean greater demand for the limited LNG supply available, leading to higher prices.

‘New LNG supply is coming onstream, but it won’t be ready for a few years. Supply can only meet demand growth from 2025 onwards. Our conversations with energy companies suggest that, unless high prices help curtail demand, the next 18 to 24 months will be very challenging for both Europe and Asia.

‘And the LNG market cannot keep growing if the world is to meet its net zero climate commitments. More investment is going into renewable energy. This clearly is the long-term solution, but it isn’t a quick fix. We think Europe is not out of the woods yet when it comes to energy supply.’

The gas market supply deficit could continue for some time

Source: Bernstein, EIA, BAML, BMO, GS, Schroders, 31 December 2022. Forecasts are not a reliable factor of future performance.

Meanwhile, in the UK, as well as France and the Nordic countries, energy security is relatively strong, according to independent policy institute Chatham House. As a result, Chatham House believes the negative impact on the UK’s economic growth of Russia’s cutting off of gas supplies is less than that on, for example, Germany, Italy or Spain. However, the UK is not immune to global energy trends, as domestic UK prices for energy are set according to global conditions.


(1) The European Union Agency for the Cooperation of Energy Regulators (ACER), ‘MMR Gas: Data items - Estimated number and diversity of supply sources 2021’, undated.

(2) Chatham House, ‘UK trade and the war in Ukraine’, September 2022.

Schroders Investment Management (SIM) provides investment management and advice services for Schroders Personal Wealth (SPW) funds and portfolios respectively.

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