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Why gas prices are falling in Europe and when to expect another price hike KXan 36 Daily News

Date: December 10, 2023 Time: 06:38:26

The reasons for the fall in gas prices seem to lie on the surface, they are unusually hot weather even for Europe, which was in the region last winter, underground gas storage facilities (UGS) filled to capacity capacity and an increase in liquefied natural gas (LNG) supplies from the US and Qatar. All this is true, but there is absolutely no reason to talk about overcoming the energy crisis, as some Western media do. In the same way, this does not give rise to the assertion that in a cold winter, for example, next year, Europe will freeze without Russian gas, as is sometimes done in our press.

As for the energy crisis, the wholesale price of gas above $300 per 1,000 cubic meters (remember, gas in the EU is now just under $540) is very expensive. This is an unbearable burden for businesses and ordinary consumers. For comparison, let’s not even take the prices in Russia, let’s take the United States, where gas now costs about 80 dollars per thousand cubic meters, without delivery to the consumer.

The second nuance is related to the fact that there was no rapid drop in gas prices in Europe. They have been gradually declining since early December, when it became clear that no particularly cold weather is expected in the Old World countries for the foreseeable future. By February 16, gas storage facilities were 64.5% full, which means now nobody needs it anymore and there is plenty.

There is also a psychological moment. The European market has adapted to the minimization of Russian gas supplies, which led to a price shock last year, believes Kirill Rodionov, an expert at the Institute for the Development of Complex Fuel and Power Technologies. Three main factors led to the adaptation of the market: firstly, the growth of LNG supplies. The share of LNG in the structure of EU gas imports from the end of 2021 increased from 22% to 39% in the fourth quarter of 2022.

Second, the growth of pipeline deliveries from neighboring countries and affected regions. For example, gas imports from the UK, Azerbaijan and North African countries to the EU in the fourth quarter of 2022 exceeded the level of a year ago by 23% (by 38 million cubic meters per day). The decrease in demand for gas in the electricity industry, which occurred at the end of last year, also had an effect: generation from gas in the EU countries in November 2022 decreased by 16% in annual terms, according to Ember, the expert specifies.

As a result, at the end of the heating season, Europe found itself with a fair amount of gas in underground storage facilities, but still uncertain prospects for the future. The fact is that not only the high prices of gasoline, which until now remain so, are bad, but also the volatility of the prices. Speculators make money from jumps in share prices, and not from the companies involved in the actual supply of gas to the population and companies. The gas was pumped to the UGS facility at prices above $1,000 per thousand cubic meters. Selling it now is much cheaper. We can try to keep it at the UGS facility until the next heating season, using regular deliveries for current needs. But this will mean a game to increase prices, and the UGS facilities will have to be refilled, although not to the same extent as in 2022.

It should not be forgotten that Russia’s gas supply gradually decreased last year. At the start of the decline in pumping volumes through the Nord Stream in June, UGS’s facilities in Europe were already 53% full, and when the pipeline was shut down in September, 81%. Now it has been flown, but the UGS will have to be filled. This means higher demand for gas and a natural rise in prices.

It is impossible to exclude further price increases from April to October, during the season of pumping gas at storage facilities, Rodionov believes. If Gazprom’s deliveries to the EU do not return to pre-crisis levels, the spring and summer will see further spikes in LNG imports, meaning tougher price competition between Asia and Europe. But the most difficult stage of the gas crisis is still behind us, says the expert.

Fatih Birol, executive director of the International Energy Agency (IEA), disagreed, telling the Munich Security Conference that the European Union expects a more difficult winter next year 2024. The European Commission also published a forecast of gas shortages and rising prices next winter. In particular, in 2024, Europe faces higher inflation risks, as price pressures will be stronger than expected.

In any case, Europe is unlikely to freeze. The EU has sufficient funds to withdraw LNG supplies from Asia. Therefore, even a very cold winter will not leave the region without gas.

All of the above does not deny the sad fact that for Russia the European gas market is almost lost. Almost all of the infrastructure that has been under construction for decades, in which huge funds have been invested, has been stopped at best and at worst, as in the case of Nord Streams, destroyed. . The breaking of gas ties between Russia and the EU made both sides feel bad. And there is no point in considering who is worse off.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Hansen Taylor
Hansen Taylor
Hansen Taylor is a full-time editor for ePrimefeed covering sports and movie news.

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