Europe’s Energy Crisis Eases Even as Ukraine-Russia Tensions Build

Supplies are still slim, filling just 38% of Europe’s storage capacity, according to Gas Infrastructure Europe. But the shortfall compared with previous winters is narrowing and prices are retreating from record highs.

A dearth of gas in Europe has hampered the region’s ability to respond to the stationing of more than 100,000 troops on the border with Ukraine. Germany, in particular, has been hesitant to advocate the strictest sanctions. Its economy would be acutely vulnerable if Moscow retaliated by cutting energy exports in midwinter.

But natural-gas futures in the Netherlands, the benchmark in northwest Europe, have dropped 16% over the past week, a decline that accelerated after more Russian gas began to flow into Slovakia from Ukraine. They are 59% below the all-time high of €180.27, equivalent to $203.86, a megawatt-hour set on Dec. 21, though still four times as high as a year ago.

Fear that storage sites would come close to running out over winter gripped energy markets in Europe late last year. Windy and unseasonably warm weather came to the region’s aid, raising renewable-power generation and reducing the call on gas-fired power stations. Medium-term forecasts suggest a cold snap that could send prices spiraling back up is unlikely to arrive, said Natasha Fielding, a gas analyst at Argus Media.

Also easing Europe’s predicament: U.S. exporters are delivering cargo after cargo of liquefied natural gas, lured by prices that shot above those in Asia late last year. Europe imported a record 9.5 million metric tons of LNG last month, almost three times the haul from January 2021, according to commodity-data firm ICIS.

Almost half the LNG arrived from the U.S. And there is little letup: Thirty vessels carrying gas from the U.S. are lining up to arrive in February, said Tom Marzec-Manser, head of gas analytics at ICIS. The figures exclude Turkey, which is battling a gas shortage following a fault on a pipeline carrying Iranian gas into the country.

The arrival of so much LNG allowed Europe to be parsimonious in dipping into the gas it had hoarded in the run-up to winter. The benefits spread across the continent instead of accruing in coastal countries with gas import terminals. That is because pipeline connections have sprung up between national gas markets in recent years.

“The light is at the end of the tunnel,” said Mr. Marzec-Manser.

Russia has started to send more gas to Europe in recent days, too. The country accounts for about 43% of the European Union’s gas imports and throttled deliveries last year, helping push prices to all-time highs.

Russia continued to drip feed gas to Europe at the start of 2022, but flows have picked up in February, pushing prices down. On Tuesday and Wednesday, a combined 119 million cubic meters entered Slovakia at Veľké Kapušany, near the border with Ukraine, according to preliminary data from the Slovak pipeline operator.

That is a noticeable increase. In the final week of January, 47.5 million cubic meters flowed through the checkpoint on average each day. From Slovakia, Russian gas can hurtle into the Czech Republic, Hungary and Baumgarten, an Austrian gas turntable with connections to Germany, France and Italy.

When Gazprom PJSC cut exports to Europe last year, EU parliamentarians said Moscow was weaponizing its dominance of the energy market, an accusation denied by the company and the Kremlin. A more prosaic factor explains the drop in exports in January and the subsequent pickup.

Under their deals with Gazprom, European customers typically pay a price tied to front-month gas contracts. So utilities and other buyers cut purchases when the contracts rocketed in December. Gazprom’s customers came back into the market for February deliveries when front-month prices eased in early 2022.

Europe still has little room for maneuver and an escalation in tensions with Russia remains a wild card. European and U.S. officials are taking no chances, racing in recent weeks to lock down energy supplies in the event the standoff imperils supplies from Gazprom.

For now, though, falling prices will offer relief to aluminum, zinc and fertilizer producers that responded to rocketing energy bills by cutting output. Gas prices have also tumbled in the U.K., the region’s other gas-trading hub. Electricity prices, which have close ties to the gas market in Europe, are falling in Germany and France, the EU’s two biggest economies.

In countries including the U.K. and France, consumers are yet to feel the full blast of last year’s leap in wholesale prices, and the recent decline will take even longer to feed through.

Write to Joe Wallace at joe.wallace@wsj.com