Energy: Lower wholesale prices: Will gas become cheaper again?

"Increased procurement costs" was the main argument used by gas suppliers for price increases for more than a year.

Energy: Lower wholesale prices: Will gas become cheaper again?

"Increased procurement costs" was the main argument used by gas suppliers for price increases for more than a year. The reason: As a result of the effects of the Russian war of aggression against Ukraine, many companies were forced to buy their natural gas wholesale at significantly higher prices in order to then be able to sell it to households and companies. However, these prices have fallen sharply since mid-December. Are the "lower procurement costs" also passed on? If so, when? An overview.

How do utilities come up with their retail prices?

The gas price has three components: taxes and levies, network charges, and procurement and sales. Municipal utilities and other suppliers buy the gas from large importers such as Uniper or on special exchanges. Gas is traded there on the so-called spot market and can be delivered in one to two days. "On the futures market, on the other hand, supply contracts with a term of up to six years are concluded," according to the Federal Association of Energy and Water Industries (BDEW).

For Stadtwerke, the short-term markets only play a subordinate role in procurement, as the industry association VKU explains. A spokesman explains that the companies are constantly buying energy for the future. Expected future energy requirements are purchased in many small quantities at different times, usually up to three years in advance.

How have wholesale prices developed recently?

Significantly down. According to BDEW, wholesale prices on the futures market in 2022 averaged EUR 117 per megawatt hour. For a few weeks they have fallen to around 70 euros. "However, the wholesale prices are still almost four times as high as before the crisis years," emphasizes the industry association. "On average from 2015 to 2019, the average wholesale gas price was around 18.50 euros per megawatt hour."

Why have prices gone down?

The gas market expert Fabian Huneke from the consulting company Energy Brainpool sees the reasons for the lower prices in a combination of a mild winter and higher gas savings than expected. This has shown: "It can also be done without Russian gas". As a result, European gas storage facilities are fuller than usual at this time. "The specter of the gas shortage has lost its horror."

How have consumer prices developed?

According to BDEW, the average natural gas price for households in apartment buildings was 19.8 cents per kilowatt hour in the fourth quarter of 2022, and 20.0 cents for single-family houses. According to the comparison portal Verivox, a kilowatt hour of gas for new customers currently costs an average of 11.8 cents.

What are the providers saying?

The energy industry emphasizes that wholesale prices do not have a direct impact on end customer prices because of the long-term procurement strategies. "Customers benefited from this long-term procurement last year," says Kerstin Andreae, Chair of the Executive Board of the Federal Association of Energy and Water Industries (BDEW). The suppliers' strategy smooths out the developments on the energy exchanges and protects customers from sharp price jumps. "But this also means that the temporarily lower purchase price will only affect end customer prices later."

What do consumer advocates advise?

According to Udo Sieverding, energy expert at the North Rhine-Westphalia Consumer Advice Centre, household customers who are still receiving increases announced in the coming weeks can consider changing tariffs or providers. He refers to the comparison portals, in which prices can now be found again that are below the temporarily cheaper basic service tariffs. "Looking into the portals can be worthwhile," he says.

However, it can be observed that many customers initially wanted to stay with their municipal utilities or other basic suppliers who had accepted them at the time after sudden terminations by energy discounters. Sieverding calls this "very understandable": Knowing about the gas price brake, which caps 80 percent of previous consumption to 12 cents, these customers would often stay with their previous providers.

How will wholesale prices develop in the future?

"What happens next this year depends primarily on the weather during the rest of the heating season," says gas market expert Huneke. "If the rest of the winter allows us not to need most of the gas we just stored, there could be a summer slump in prices." But you have to be prepared again for the next winter: In Europe, you can't afford to consume gas like in a very cold winter, even next winter. The risk of an expensive gas shortage in the next winter is still there, but has fallen significantly. Huneke does not see a clearly falling price trend until 2025.