Gas prices have come down significantly from their highs. Given the risks of a recession, this is long overdue news. But is the energy crisis over and the horror scenario for consumers and industry averted?
Less than two months ago, a price signal sent shockwaves through Europe. At the end of August, the price of natural gas on the market reached a new record high: one megawatt hour (MWh) in the futures contract cost 346 euros at the Dutch reference point TTF. The all-time high meant ten times the price of the previous year. Since then, prices have been falling.
In mid-September, the TTF reference value fell below the EUR 181 mark – and was thus only half as high as at the end of August. Analysts predicted the trend would continue, with prices "continuing to fall over the winter." The forecast is now coming true faster than expected: At the beginning of the week, Europe's wholesale price for gas was only 95 euros per megawatt hour - i.e. 9.5 cents per kWh. That's the lowest level since early June and a whopping 70 percent down from the peak in August.
Is the crisis over - has the horror scenario for consumers and industry been averted? Or does it only appear? The sharp fall in the price of gas allowed suppliers across Europe to breathe a sigh of relief. However, things still look different on consumers' gas bills, as the deductions are currently increasing, which is not likely to change anytime soon. Because of strongly fluctuating wholesale prices, according to the Federal Network Agency, "companies and private consumers have to adjust to significantly increased gas prices". The savings target of at least 20 percent must also continue to be achieved.
For new customers, the suppliers' gas prices have recently been falling. The peak seems to have been passed, but that doesn't mean there can be no all-clear, say analysts. Even a forward gas price of EUR 100 expected by Goldman Sachs in the spring – i.e. just above the current level – is still around five times as high as before the Russian invasion of Ukraine.
According to experts, there are several reasons for the fall in gas prices. The fear that there could be supply bottlenecks in winter has decreased across the board. Because an oversupply has built up in the past few weeks: the weather is significantly milder than usual for this time of year. It is therefore heated less than usual. The weather forecasts in Europe continue to assume above-average daily temperatures of 15 degrees Celsius until the beginning of November. The oversupply is likely to last for that long.
At the same time, Germany, the largest natural gas customer in the EU, managed to fill up its gas storage facilities quickly. The filling level is currently up to 97 percent, around ten percentage points higher than in mid-September. The federal government's goal of reaching a filling level of 95 percent at the beginning of November has thus been achieved. Since the delivery stop of the Russian energy group Gazprom through the gas pipeline Nord Stream 1, extensive liquid gas deliveries have reached the European ports (LNG). The high prices of recent months have attracted new suppliers. Another reason why Germany is struggling with a European gas price cap.
Anyone who studies the map of the coastal waters around Northwest Europe, the Iberian Peninsula and the northern Mediterranean Sea on the website of the MarineTraffic consultants will see countless blue dots: Dozens of liquid gas tankers are waiting to be able to unload their cargo. But the storage capacities of the European LNG terminals are apparently not sufficient. According to industry reports, 35 tankers are waiting for the green light off Spain alone – the country in Europe with the most liquid gas terminals.
According to Spain's network operator Enagas, the traffic jam could mean that planned landings would have to be canceled. The situation remained unclear until the first week of November. In this way, the transporters become floating warehouses – this also depresses wholesale prices.
The EU energy ministers are also currently sending out political messages from their meeting after the EU summit of heads of state and government. It is true that intensive discussions about a price cap of whatever kind are not over yet. But the markets are being signaled that there will be decisive government intervention – which should also have a dampening effect on prices. In addition, the EU countries want to expand their market power through joint purchases.
The price of electricity on the exchange has also fallen by two thirds since the end of August. This is now even having an effect on new electricity contracts for consumers. Prices are falling, the peak seems to have been passed. However, when the exchange price – for electricity or gas – rises or falls, it only reaches the end consumer with a time lag. The energy suppliers are lagging so far behind the development that the price increases of the past have not even reached many households. Instead, you have to pay higher discounts.
If the exchange prices for natural gas fall, however, this should also fuel the debate about excess profit taxes for those who profit from energy prices. After all, energy companies can buy at lower prices. The oil and gas group Wintershall Dea, for example, had recently made a lot of extra money in the third quarter: Thanks in particular to the high energy prices, earnings before interest, taxes, depreciation and exploration costs increased to almost 2.6 billion euros, after almost 1 billion euros a year before .
Economists can also get good news from the downward trend in gas prices. The private bank Berenberg continues to expect that the risk of a gas shortage will cause a recession in Germany and Europe. But the trend is going in the right direction, said Berenberg chief economist Holger Schmieding in a podcast. "The recession will not have to be quite as severe as feared weeks ago," said Schmieding, when the forecasts of fluctuating prices around 200 euros were assumed. Now they are likely to break in at 150 euros next winter. As a result, his House now expects eurozone economic output to fall by 0.9 percentage points (compared to 1.2).
If the gas price no longer remains so dramatically high, that would also be good news for states and their budget deficits. Anyone who tries to absorb the price explosions through subsidies in order to make the expensive gas available to the consumer at a reasonable lower price will reduce the cost pressure. "We expect a deficit of 4.8 percent for European households instead of the previous 5.4 percent," says Schmieding.
The article first appeared on Capital.de.
