Oxford Energy Podcast – A Series of Unfortunate Events:​ Demand-Side Factors in the European Gas Price Rally ​in 2021

In this podcast, James Henderson talks to Anouk Honoré about her forthcoming article “Demand-side factors behind the historical gas price rally in Europe in 2021”. This article is part of a trilogy entitled “A Series of Unfortunate Events” that analyses the main supply and demand factors in the European gas market(s) that contributed to rising gas prices since summer 2021 and culminating in record levels in Q4 2021.  

Looking at a European region with 34 countries, gas demand rose by an estimated 6% in 2021, especially driven by the growth in the Turkish market.  

Colder temperatures in the first four months boosted gas use for heating in buildings and heating-related electricity consumption; strong recovery in economic activity, especially in the first 3 quarters, led to a rebound in industrial gas demand; and finally the use of gas in the electricity generation remained relatively high despite some gas to coal switching in the second half of the year.   

 An important take-away highlighted in 2021 was the relative inelasticity of gas demand to react to short-term price changes.  

Gas/coal switching in the power sector has been the main source of this flexibility and with the rapid coal phase out expected in many countries in the coming years, gas demand in Europe will become (even) less price responsive. This begs the question about the role of the region as the main balancing market for the global LNG market in the near future.   


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