Energy crisis: The price of gas falls, the bill remains high

The gas price on Europe's markets has fallen significantly.

Energy crisis: The price of gas falls, the bill remains high

The gas price on Europe's markets has fallen significantly. In view of the impending energy shortage in the upcoming winter, this is good news - but consumers shouldn't get too excited about it too soon. An overview of the topic in questions and answers.

The price for one megawatt hour of natural gas was less than 30 euros on the German energy exchange EEX at the beginning of the week. A month earlier, the value was still more than 200 euros. It's about the spot market - gas that you buy today and buy tomorrow. Until mid-2021, the spot market price was usually in the range of 10 to 30 euros.

In the case of futures contracts - i.e. contracts with a guaranteed price for later deliveries - the prices have also gone downhill in the past few weeks. At the Dutch trading point TTF, a futures contract for the next month recently cost less than 100 euros and thus only half of what it was a month ago. The TTF contract serves as a guideline for the European price level.

What are the consequences of the development?

Anyone who clicks their tongue in relief at the current relaxation of prices on the gas market and assumes that the gas bill will not be as steep as feared is wrong. "It remains very expensive for consumers, the current drop in prices on the market has no immediate consequences for them," says Matthis Brinkhaus from the analysis company Energy Brainpool. As a rule, the suppliers covered their energy requirements largely with long-term forward transactions and only to a small extent with purchases on the short-term spot market.

"Even if some suppliers recently expected slightly higher purchase prices and now have to pay a little less, this is factored into their general cost calculation." There are no direct price reductions to customers, especially since the "price adjustments" are usually only made once a year, says Brinkhaus. Only large industrial consumers, whose tariff is partly linked to the current market price development, could be relieved somewhat thanks to the current price situation.

According to Economics Minister Robert Habeck, the sharp drop in wholesale prices is only good news for consumers in the medium term. For the markets, however, this is a strong sign, says the Green Party politician.

What are the reasons for the price drop?

In the past few months, a trading company has been buying gas on a large scale on behalf of the federal government in order to fill the German storage facilities. They are now 97.5 percent full. This is an average value, some memories are already 100 percent full. The demand for gas to fill storage tanks has therefore fallen sharply. The fact that the storage facilities are so full is also due to the mild weather. This makes it easy for many citizens to leave out the gas heating and their overall energy consumption is lower than usual in autumn.

"Consumption data from the past few weeks has shown that citizens are serious about saving energy," says Georg Zachmann from the Bruegel think tank. The markets would have drawn the conclusion that Europe's hunger for energy in winter could not be as great as previously assumed. "This shows that saving energy is doubly worthwhile: on the one hand you burn less gas and on the other hand the saving behavior has a dampening effect on the price development on the energy market."

Economics Minister Habeck (Greens) answers the question with a clear yes. He argues that the camps are so full because of political requirements and that an alternative infrastructure is being built, driven by politics. Further measures have already been announced. In the future, at least part of the gas demand in the EU is to be bundled in order to negotiate better prices. Regarding the current retail price level, Habeck said: "You wouldn't have dared to dream of that in the summer." However, the current level is "still high, and it will not be the same as before Putin's war". Therefore, among other things, saving energy is very important.

What's the prognosis?

A noticeable price increase is likely. "The current prices on the spot market are only a snapshot," says energy expert Brinkhaus. "If it gets colder, prices will go up." It is clear that the stores will be empty in the coming winter months. If your storage level drops faster than you had hoped, the gas price could go through the roof again and even a gas shortage could be declared.

Germany may get through the winter without gas rationing for companies. It is interesting that futures contracts for guaranteed deliveries in the first months of 2023 currently cost around 140 euros per megawatt hour. "The market expects that the structural shortage will continue," says Bruegel expert Zachmann.

From a technical point of view, 100 percent is possible, says Sebastian Bleschke from the gas storage association Ines. Under optimal conditions, a fill level of more than 100 percent can even be achieved in some systems. However, the association's managing director points out that the filling is heavily dependent on the weather. "If the average daily temperature falls to six degrees or less, demand will increase sharply and it will be difficult to store larger quantities." In the past week it was an average of 12.1 degrees.

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