The gas storage facilities are filling up and worries are disappearing: the price of natural gas at the Dutch trading point TTF has been in free fall for the past six weeks. So far, however, consumers in Germany have not noticed anything. Not yet?
If you only look at Germany, then September was not a good month for gas consumers: Because the weather quickly got cold, German households had to heat 76 percent more than usual in September, according to the comparison portal Check24. There were also the attacks on the Nord Stream pipelines, which is why it is clear that no more natural gas can be delivered there from Russia in the foreseeable future.
And despite this bad news, the price of gas is falling, and sharply at that. Since its last peak at the end of August, the trading point TTF in the Netherlands, which is important for Europe, has fallen from EUR 339.20 to around EUR 165 per megawatt hour. That’s a drop of more than 50 percent.
There are several reasons for this development. For example, the gas storage facilities in Europe are now well filled, despite all the quarrels about Russian gas supplies. Germany’s gas storage facilities are currently reporting a filling rate of 91.28 percent. EU-wide it is around 88 percent, which is slightly above the average of recent years. The scenario of a gas shortage with no Russian deliveries in the winter is now much less likely. Norway in particular has ensured this with increased funding, but also the Netherlands by extending the operation of the Groningen gas field by a year. Southern Europe has opened up new sources of supply in North Africa, such as Egypt and Algeria.
In addition, it is currently not as cold in Europe as in Germany. Overall, the temperatures on the continent are above the long-term average, which means that in most countries not so much has to be heated and, as a result, gas consumption has also fallen. And ultimately, consumers and the economy are clearly limiting themselves. By the end of August, gas consumption had fallen by around 10 percent year-on-year, as measured by the International Energy Agency IEA.
For the time being, consumers notice little of the drop in prices on the European gas market. On the contrary: It was not until September that the average gas price for private households rose to a record 21.9 cents per kilowatt hour. This corresponds to 232 percent more than in September 2021, as Check 24 reports. 603 further price increases have already been announced for October, with an average increase of 84.5 percent. However, this number comes from a time when the gas surcharge had not yet been abolished. In real terms, the increases could therefore be lower.
Experts believe that wholesale gas prices will continue to fall in the coming months. “We will definitely see a drop in prices over the next 18 months,” said Timm Kehler, managing director of the “Zukunft Gas” association, to “n-tv”. However, it shouldn’t go down too far. Kehler expects price levels to be above 2021 levels but below the levels we have seen this year. That would result in a price range between 100 and 150 euros.
However, this is only good news to a limited extent for consumers, as it could cause the end prices for natural gas to continue to rise. A gas price of 150 euros per megawatt hour means 15 cents per kilowatt hour. According to a breakdown by the Federal Ministry of Economics in 2017, the purchase price only accounts for around half of the final price. In addition, there are costs for transport and storage, grid fees, taxes and various smaller charges. At the time, these additional costs were given as 3.12 cents per kilowatt hour. At a wholesale price of 150 euros per MWh, this would mean a final price of 18.12 cents per KWh, which is only slightly below the current average price of 21.9 cents. The gas price brake planned by the federal government could provide temporary relief here. A cap of 13 cents per kWh is under discussion.
Experts are more worried than about the current winter when looking into the future. It currently seems unlikely that Russia will again deliver gas to Europe by sea or land in the coming year. Although alternative delivery routes are being developed, it is questionable whether these can completely replace Russian gas as early as next year – and if so, at what price.
In addition, it is unclear how consumption will look in the coming year. The IEA is currently assuming that European gas consumption will fall by a further four percent compared to the current level. Goldman Sachs analysts argue that when the economy picks up after the winter, the economy’s hunger for gas will increase, leaving less gas to fill storage for the winter.
The price prospects are correspondingly bleak: analysts at Citibank do not expect gas prices to return to the level of early 2021 until between 2025 and 2027 – i.e. less than 20 euros per kilowatt hour. This also corresponds to the reality on the trading markets. Gas deliveries up to 2024 are already up to 130 euros per megawatt hour, which are record values so far in advance. However: The prices in futures contracts have recently fallen again slightly.
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