Dusseldorf Fear of a supply freeze from Russia drove the price of natural gas to a record high on Friday. A megawatt hour of gas for the month of September cost over 340 euros on the European TTF exchange. The price of natural gas has risen by more than ten percent within one day and has more than tripled since the beginning of the year.
Last week, the Russian gas company Gazprom announced that it would interrupt deliveries via the Nord Stream 1 Baltic Sea pipeline again for three days from August 31 due to maintenance work. According to Gazprom, renewed maintenance is necessary due to faulty turbines.
As with the previous maintenance in mid-July, the gas market reacted very nervously. Once again, there is great fear that the gas will no longer flow after the end of the maintenance period.
Since mid-June, Gazprom has continued to cut gas supplies to Germany. First to 40 percent of the original amount, and finally to 20 percent after the two-week maintenance in mid-July. Since then, only 33 million cubic meters of natural gas have flowed through the pipeline every day.
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The gas crisis in Europe is exacerbated by several incidents: Norway is also currently supplying less gas – due to unscheduled maintenance work following technical problems in the gas fields.
A major liquefied natural gas (LNG) export terminal in Freeport, Texas, was also forced to close after an explosion in June. The terminal was originally scheduled to be operational again in October, but the reopening was recently pushed back to November.
The delivery difficulties from Texas come at a particularly inconvenient time, says Ehsan Khoman, commodities expert at Bank MUFG. Because Europe is “increasingly relying on LNG to compensate for the lack of Russian supplies.” The lack of gas supplies from Texas and Norway “intensify a crisis that is destabilizing the European economies,” Khoman continued.
Gas prices: The next price jump is imminent in October
According to experts, there is no end in sight to the high gas prices. Commerzbank economist Christoph Weil expects prices to skyrocket again in October, when many suppliers in Germany raise the gas levy for the first time.
Chaos also reigns on the electricity markets: the price of electricity for delivery in a year’s time also rose by 25 percent on Monday to a new record high of 748 euros per megawatt hour. A year ago, the price was still 23 euros per megawatt hour. An increase of almost 3000 percent.
The prices for electricity, coal, oil and gas have been rising continuously since last autumn. First because of the skyrocketing demand after the end of many corona restrictions in the global economy, since the start of the Ukraine war at the end of February mainly due to the physical gas shortage.
Because the electricity market is closely related to gas prices: if the demand for electricity cannot be covered by renewable energies, nuclear and coal-fired power plants, gas-fired power plants step in by the hour. They start last because they are the most expensive generation variant. But although only about 10 percent of the electricity consumed in Germany comes from gas-fired power plants, the electricity price for the entire energy mix is based on them.
Economics Minister Robert Habeck announced on Friday that he intends to break the link between electricity prices and gas prices. The electricity price jumps should be significantly lower in the future. But in government circles, expectations are being dampened: such a fundamental project takes time and cannot be a quick relief for the coming months.
The traffic light coalition has been trying for months to lower the high energy prices and is currently preparing another package of measures.
Europe’s gas crisis drives up prices worldwide
Meanwhile, the gas crisis is no longer limited to Europe. Gas prices in the US have also risen to their highest level in more than 14 years. “Utilities in Europe and Asia are competing for the same LNG cargo loads in the spot market, driving prices ever higher,” explains MUFG commodity expert Khoman.
Khoman also expects consumer gas prices to be many times the long-term seasonal average prices. The chances are good that, despite the recent maintenance of Nord Stream 1, Europe will be able to fill its gas storage facilities to 90 percent by the end of October. But the price for this is likely to be high.
He expects average gas prices of 230 euros per megawatt hour in the third quarter of 2022, and they could drop to around 150 euros per megawatt hour in the fourth quarter. According to his forecast, however, they could already rise above 200 euros per megawatt hour from mid-2023.
That would be a relief compared to the current record prices. But compared to the annual average for 2021, natural gas would still be more than ten times more expensive.
More: Habeck wants to decouple the electricity price from the gas price