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The big drop in gas prices

2023-05-13 11:19:00, Blog CNA
The big drop in gas prices
Illustrative photo

Ever since Russia threatened to intervene in Ukraine, the price of gas has risen. All the media, as well as experts, predicted high gas bills for consumers, mainly in Europe, as a result of the inevitable interruption of gas supplies from Russia at the beginning of Putin's war. Of course, this has also caused a lot of speculation in the world stock markets and this issue turned into a profit opportunity for many of them. But after the first shock at the beginning of March last year, the price of gas calmed down a bit until the end of summer, when it was necessary to prepare for winter and fill the warehouses.

The historic price record was thus reached on August 26, 2022, when the price was nearly 340 euros for a megawatt hour of EU Dutch TTF natural gas. But only a day later it started raining. During last fall and winter. Then there were price fluctuations, but the price of gas is decreasing: Currently (on May 11) the price on the Trading Economics portal was ten times lower than last summer's peak, at only 34.6 euros per megawatt hour. That was around the end of June two years ago.

The main reason was the mild winter

As much as experts agreed that the price of gas would rise, now they explain that the price of gas is falling because of the mild winter. Therefore, many warehouses have remained well filled.

The big drop in gas prices
View from Berlin

And this is the most important thing for consumers: the full warehouses have also influenced the reduction of prices. The weather is still not so warm and many people still use heating, but the winter was not so cold and this has had a positive effect on the price reduction.

Another reason is that the gas price curve in Europe is more and more similar to the price on the world market: Europe was dependent on gas pipelines from Russia, but liquefied gas is increasingly important in supplying consumers of the old continent. Commerzbank economist Ralph Solveen explains how the deciding factor for consumers in Germany this winter was gas imports from Belgium and the Netherlands. Admittedly, the first LNG terminal opened in Germany last December, while the third in Brunsbüttel started operating this April, but there is still plenty of capacity available.

It is not the end of the crisis!

So it turns out that in the annual bills that are reaching German consumers, many of them have to get the money back, because they sometimes overpaid for gas. This is to some extent the merit of the German government, which since March of this year has announced the limitation of the highest price of gas for families at 12 cents per kilowatt hour, but only to the extent of 80% of last year's consumption. In other words, if citizens have saved 20% of gas from a year ago, this is also reflected in prices. For the rest of the expenses, the market price of gas must be paid.

The big drop in gas prices
Lowering the price of gas does not go in favor of Putin's policy

And although the price of gas in Europe is more and more similar to the price on the world market, economist Solveen warns of the possibility of changes. Because last winter, the world gas price was also low due to significantly weaker demand from China, which is still recovering from the consequences of the pandemic. This will not last long, so the price of gas will rise again, the expert is convinced.

An additional risk is that consumers - both households and companies, with gas prices this low, feel they were foolish to even save money and put on an extra sweater and warm socks instead of setting the thermostat to a warmer temperature. up. Because we still have to save: even though two more LNG terminals are being prepared in Germany, we now have to fill up the warehouses again.

As Solveen warns: "The biggest uncertainty is the weather factor." This winter was mild, but no one can tell what the next winter will be like. And the entire gas market in Europe is still uncertain and doesn't seem to be calming down anytime soon./ DW

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