Gas prices at record levels – and no end in sight

“We don’t see any signals that the fundamental price drivers are weakening. In this respect, it can be assumed that the current situation will not change significantly and that prices will continue to rise, this applies to both electricity and gas, ”said Christian Seyfert from the Association of Industrial Energy and Power Industries (VIK), whose 300 member companies account for 80 percent of industrial energy consumption in Germany.

The example of Great Britain shows how critical the situation can become. There the government is considering supporting energy suppliers with loans. The price hike has already forced four smaller British utilities to stop trading. In the UK, tariffs have risen a whopping 250 percent since the start of the year. Economy Minister Kwasi Kwarteng had therefore scheduled a crisis meeting with the leading energy suppliers at the weekend. As the “Financial Times” reported, the British economy is now calling for an aid package worth several billion pounds to alleviate the current crisis.

The UK government is now considering providing subsidized loans to affected companies. Prime Minister Boris Johnson tried to reassure consumers on Monday. The disruptions are only temporary: “Market forces will compensate for this very quickly, and we will do everything we can to help,” said Johnson on a visit to New York.

German industry is also looking at the rising natural gas prices with concern. According to the assessment of the major gas consumers in the industry, there are currently no signs of easing. You are only in a good position if you have taken precautions: “It has been shown repeatedly that you can counter situations such as those we are currently observing on the market with long-term price hedging,” said Seyfert. The VIK brings together 300 companies from industry and commerce, which represent around 80 percent of industrial energy consumption in Germany. However, most of them are still only insured against rising energy prices for a short period of time.

The chemical industry and steel manufacturers are dependent on the gas price

Natural gas is required in countless industrial processes, whether as a heating medium for process heat or as a reducing agent in steel production. A third of German natural gas is consumed by industry. The chemical industry accounts for the largest share.

However, companies such as the plastics manufacturer Covestro have been preparing for a long time as part of their decarbonization strategy to reduce the proportion of natural gas in their energy mix. For Covestro, access to green electricity at competitive prices is a particular priority when it comes to energy supply, a spokesman said on request. “The availability of renewable energies at economical prices continues to be the key to the energy transition.”

In addition to the chemical industry, the metal industry is one of the largest consumers of natural gas in Germany. Here, too, many companies are indirectly affected by the record gas prices because many process steps – such as melting down scrap in a so-called electric arc furnace – are very energy-intensive. In some cases, however, natural gas is also required as a raw material that cannot be replaced in the short term in steel production, for example.

For example, the world’s largest steel manufacturer Arcelor-Mittal is dependent on the supply of natural gas at its Hamburg plant in order to reduce iron ore to so-called sponge iron, which is later melted into steel in an electric steelworks. The group is thus affected twice by the price increases: on the one hand through the higher gas price itself, on the other hand also through higher electricity costs. Arcelor-Mittal is hedged against volatile gas prices, at least for a short time.

Many medium-sized companies are also taking a similar path. For example in the brick industry, where gas plays an important role as a heat source. Despite the contractual safeguards, companies are showing concern. In brick production, energy consumption alone accounts for around 30 percent of the operating costs, as Stefan Jungk, managing partner of the brick manufacturer Juwö Poroton from Hesse, explains. Unlike many other building materials, the price of bricks has not risen recently. “This is also due to the fact that we have contractually fixed our energy prices in the medium term.” But that is only of limited duration.

Consumers should consider switching providers

It is only in the spring after the heating season – according to market expectations – that the gas price should fall below the 60 euro mark for the first time. “The dealers do not expect prices to return to around 20 euros until 2024,” says Energy Brainpool expert Huneke.
The high prices are no longer bypassing consumers. On Monday, several providers announced price increases of over twelve percent for September and October. According to the comparison portal Verivox, this leads to additional costs of 188 euros per year when heating a single-family house.

That is why consumers should start thinking about changing providers, advises the Federal Association of Consumer Organizations (VZBV). In addition to higher wholesale prices, the CO2 price for fossil fuels will also rise from 25 to 30 euros per ton at the turn of the year. Many gas suppliers pass these costs on directly to their customers.

Energy expert Thomas Engelke therefore recommends that private gas consumers switch providers if there are price increases, especially if they still have a tariff in the expensive basic supply. If a price increase is announced, consumers can terminate the contract within 14 days and switch to a cheaper provider.

Vice-President of the Greens, Oliver Krischer, also advises comparing prices. “I can only recommend all households to compare and, if necessary, to switch providers,” said Krischer to the Handelsblatt. “At the turn of the year we will experience a large spread. Many suppliers will announce their pricing policy for next year from the beginning of November, then most customers will have enough time to look for a new gas supplier by January 1, 2021, ”advises the Green politician.

Krischer sees responsibility for the price explosion with the political opponent: “Scholz is to blame,” says Krischer. The SPD candidate for chancellor and his party would have punched the Baltic Sea pipeline “Nord Stream 2 significantly in Germany, which is why there are now indirect distortions in wholesale prices,” says Krischer.

“Normally, security of supply is guaranteed in winter with the existing pipelines, even if the gas storage facilities are full,” said Krischer. “This year the storage facilities are not full. If it gets really cold in February, important storage facilities are empty and Nord Stream 2 has not been put into operation, regional bottlenecks can occur. Then apartments stay cold and gas power plants have to be switched off, ”warns Krischer.

The operators of gas storage facilities in Germany, however, do not see this danger. “The gas storage facilities in Germany are currently 64 percent full – a very low level compared to historical values. However, the technical potential for maximum storage enables the market to reach a fill level of over 90 percent by the beginning of November,” said the initiative Natural gas storage facility (INES), in which the operators of German natural gas storage facilities have come together. In a historical comparison, this would then correspond to the usual fill level, INES said.

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