Extreme cold weather in both the United States and Denmark is draining European gas reserves and driving prices up by more than 40 percent in just two weeks. The situation is affecting not only households with gas heating but also electricity prices across Denmark, potentially eroding the government’s recent tax relief on electricity bills.
Gas Storage Levels Drop Below 50 Percent
The persistent cold snap affecting multiple regions worldwide has created a significant impact on energy markets. European gas storage facilities have fallen below 50 percent capacity, pushing gas prices to their highest levels since early spring 2024.
Arne Lohmann Rasmussen, chief analyst at Global Risk Management, warns that the combination of weak wind, no sun, and harsh cold creates a problematic situation for both electricity and gas markets. The surge in demand comes from multiple sources, including American heating needs and the growing energy consumption of artificial intelligence data centers.
300,000 Danish Households Face Higher Heating Bills
Approximately 300,000 Danish households still rely on gas heating systems. These homeowners now face the prospect of significantly higher energy bills as winter continues. For many, the decision to stick with gas heating was based on practical and economic considerations.
Jesper Nielsen from Greve Kommune represents one such case. Two years ago, when his old gas furnace stopped working, he chose to install a new gas system rather than switch to a heat pump or district heating. At the time, a new gas furnace cost around 35,000 kroner, while a heat pump would have set him back between 150,000 and 200,000 kroner.
Despite current price increases, Nielsen maintains he made the right choice. His area still lacks concrete plans for district heating infrastructure, even though initial promises suggested rollout by 2030.
Rising Electricity Prices Follow Gas Market
The impact extends beyond households with gas heating. When gas prices rise, electricity prices typically follow because German gas-fired power plants, which help supply Denmark’s electricity grid, need to cover their increased fuel costs before generating power.
Denmark’s energy infrastructure remains closely tied to neighboring countries, particularly Germany, meaning Danish electricity prices move in tandem with broader European energy markets.
Government Tax Relief Partially Offset
The timing proves unfortunate for Denmark’s recently implemented electricity tax cuts. Shortly before Christmas, a parliamentary majority agreed to reduce electricity taxes to the EU’s minimum allowed rate of 0.8 øre per kilowatt-hour for 2026 and 2027.
This reduction was expected to save an average Danish family of four living in a 150-square-meter home approximately 4,000 kroner annually. However, rising electricity prices are now eating into these savings. Louise Aggerstrøm, chief analyst and private economist at Danske Bank, notes that while prices are increasing, they remain far below the extreme levels seen in 2022.
Experts Recommend Energy Efficiency Measures
Marie Münster, professor and energy systems expert at the Technical University of Denmark, understands why gas furnaces remain attractive during periods of stable, low prices. However, she cautions that this stability can be deceptive.
According to Münster, the most effective way to reduce direct household energy consumption during high-price periods is through district heating or heat pumps. Heat pumps prove particularly efficient because they utilize ambient or excess heat in addition to electricity, especially when paired with storage systems that allow operation during off-peak pricing periods.
Industrial Impact and Market Speculation
Beyond residential consumers, businesses using gas in production processes face similar challenges. The gas market operates like any commodity market, making it susceptible to speculation. Late last year, speculators bet on another mild winter and consequently low gas prices. The actual harsh winter conditions caught these market participants off guard, potentially amplifying price pressures.
Global Risk Management now recommends that corporate clients lock in gas prices for the remainder of the year to hedge against further increases.
European Energy Independence Concerns
A broader geopolitical concern looms over the energy market. Europe has shifted from dependence on Russian gas to heavy reliance on American liquefied natural gas (LNG). Currently, 60 percent of imported LNG comes from the United States, representing a quarter of all gas consumption in Europe.
Rasmussen raises the possibility, however unlikely, that the Trump administration could use American natural gas exports as leverage against Europe. Such a move would be more effective than tariffs for damaging the European economy while simultaneously securing low gas prices for American consumers.
Long-Term Energy Security Questions
The current situation highlights ongoing challenges in European energy security. While breaking free from Russian gas dependency was necessary, the concentration of supply from a single alternative source creates new vulnerabilities. Even threats to reduce American LNG exports could send European gas prices soaring.
Nevertheless, Aggerstrøm provides some reassurance that the extreme price volatility of 2022, when some households received heating bills totaling many thousands of kroner, is unlikely to return. As Europe continues developing energy independence and diversifying sources, the market should experience fluctuations within more manageable ranges.
The coming weeks will test both energy infrastructure and household budgets as cold weather persists across multiple continents, keeping pressure on global energy markets.
Sources and References
The Danish Dream: Denmark Bans PFAS Pesticides to Protect Groundwater
The Danish Dream: Best Energy Providers in Denmark for Foreigners
TV2: Kulde i USA og Danmark tømmer gaslagrene og presser priserne op
