Will gas prices stay this high for long?

Will gas prices stay at record levels for long? How can the extreme volatility of prices over months be explained? Do we have to reckon with a structurally expensive gas in the coming years? Click tried to see things clearly.

roller coasters and records

If we look at gas prices on the international markets, the trend is very clear. A year ago, a megawatt/h of gas was worth €18. Today we are at 74. And we saw peaks of over €140 at the end of December. The market has been very high and extremely volatile for several months. From one day to the next it can be €10 to €20 per megawatt.

There are several explanations for these tensions in the gas market

  1. The post-Covid economic recovery has created huge energy demands by pumping into under-stocked supplies.
  2. We suddenly started the winter with low inventories, at a time of year when we need more energy. This creates price tensions and speculative games.
  3. Geopolitical tensions with Russia over Ukraine weighed heavily. Russia has the largest gas reserves in the world and supplies 40% of the gas consumed in Europe. Suffice it to say that Moscow has a tap there, an important strategic lever.
  4. Energy transition forces, the ton of CO2 is becoming more and more expensive, which also pulls up the gas price.

Persistently high prices?

Market prices have been in a downward trend for a few days. It’s possible, but analysts, including economist Philippe Ledent (ING), believe the market will remain tight at least until the end of winter.

With inventories low, it would only take a sudden increase in tensions with Russia or a small cold spell for waves to surge to new heights. Prices have been on a roller coaster ride since September, but prices never fall below the still very high 75 euros per megawatt hour.

Blame Liberalization?

For the specialist Pierre Terzian, who runs the Petrostratégie company, the problem we have today is linked to a liberalization strategy that has been poorly thought out at European Union level. “Led by successive European Commissions, Europe has liberalized gas trade… pretending to produce the gas it needs, as if not dependent on imports and therefore on what is happening elsewhere in the world, and as if there were no supplier was more important than the others, namely Russia. It really is an incredibly ruthless ideological approach“.

For him, this liberalization should have been accompanied by much stricter rules to ensure security of supply: “It is unbelievable that the market has been liberalized to such an extent without, on the other hand, having created strategic compulsory stocks, without having imposed any obligations on players in the event of shortages or crisis situations. For example, how is it possible for companies to re-export gas that was previously imported into Europe to other markets with better prices…when we run out of gas?”

A strategic gas for the EU

Nevertheless, gas is and will remain a strategic resource for the European Union. With the phase-out of coal, the decommissioning of nuclear power plants and the challenge of making up for the loss of renewable energies, gas will play a key role in our energy mix. A strong incentive to develop policies that control costs and security of supply.

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