Almost five times cheaper than in August: The wholesale price of natural gas in Europe fell to its lowest level since Russia invaded Ukraine on Monday, thanks to a mild winter which saves money stocks, but analysts warn of market unpredictability in the months ahead.
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The reference price for natural gas in Europe is for one megawatt hour (MWh) deliverable the following month, for the TTF contract on the Dutch market: on Monday, this price was hovering around 73 euros, the lowest since February 21, 2022.
This wholesale price has lost almost 50% in one month and has largely come down from summer peaks: in August 2022, it had peaked at 342 euros.
Gas prices started to rise before the war in Ukraine, but they really exploded from February 24, 2022. The closure of several gas pipelines between Russia and Europe, until then its first customer, mechanically increased the price, since there was less gas coming to the continent.
Gazprom’s gas exports to the European Union and Switzerland have fallen by 55% in 2022, Gazprom announced on Monday. The Russian giant delivered 62 billion cubic meters to Europe in 2022 compared to 138 billion in 2021, according to an estimate by Thierry Bros, energy market analyst and teacher at Sciences Po.
Why are prices falling today? Firstly because Europe filled its reserves to the brim last summer, then because the autumn was very mild, and finally because households and businesses voluntarily reduced their consumption: Europeans burned much less gas in their boilers.
Inventories therefore remain very comfortable for the start of the year, and there is therefore less need to buy gas.
The filling rate of European gas stocks stood at 83.3% on Monday. French stocks are 84% full, Germans 90%, according to Gas Infrastructure Europe.
The price of gas affects electricity, as many European power plants burn gas to generate electricity.
In France, the price of wholesale electricity for delivery in 2023, which had exceeded 1,000 euros / MWh at the end of August, fell to 240 euros on Friday, the lowest since April.
But these variations in wholesale prices are not directly reflected in the prices charged to consumers, because suppliers are smoothing their prices, especially during this period when prices can jump from one day to the next.
For the future, analysts remain very cautious.
“It all depends on what Vladimir Putin decides about gas flows to Europe,” Bros. told AFP. “He could send less, but he could also send more in certain directions in the hope of dividing European countries among themselves, this is what some academics call the + Kremlin uncertainty principle + which thus tests the European unity”.
As an example, he cites the possibility for Russia to export gas through a pipeline through Belarus, hoping to interest countries like Italy or Germany.
But “if Europe does not receive at least 30 billion cubic meters of Russian gas, it will be difficult to fill storage this summer and prices are likely to rise,” he said.
Nevertheless, the continent is “better prepared” than last year, he said. In January 2022, European gas reserves were only 54% full, before the outbreak of the conflict.
Same uncertainty on the industrial side. “If there is a cold spell at the end of January, prices will start to rise again”, warns Nicolas de Warren, president of the association which brings together the most energy-consuming industries in France (chemical, pharmaceutical, steel, food industry, etc.)
He also fears competition for liquefied natural gas (LNG) cargoes between Europe and Asia, where the prices charged are “now higher than European prices”.
To ensure greater visibility for European industries in the future, “what will be negotiated now is to return to long-term gas contracts with exporting countries, Norway, Qatar, Nigeria, Iraq possibly,” he underlines.