Hong Kong News

Nonpartisan, Noncommercial, unconstrained.
Sunday, Jan 29, 2023

Europe’s energy prices slump. Just not on your bill.

Europe’s energy prices slump. Just not on your bill.

Natural gas prices are below what they were when Russia launched its full-scale invasion of Ukraine — but it’s still too early to celebrate.

January temperatures are rising and the price of gas is falling — that's good news for Europe and bad news for Russian President Vladimir Putin.

However, those price drops are still a long way from showing up on energy bills for consumers and businesses.

Although Europe’s energy crisis is still very far from over, 2023 could hardly have started better for policymakers worried about how to keep the lights on this winter and beyond.

Exceptionally mild weather — including a record-breaking New Year’s Day in several countries ­— has further eased already falling gas demand, contributing to a drop in wholesale prices, which have now tumbled to levels not seen since before Russia’s full-scale invasion of Ukraine more than 10 months ago.

The unseasonable warmth combined with a prior, drastic cut to gas demand in Germany and other European economies saw month-ahead gas prices trading at €70.80 per megawatt-hour at the main European exchange, the Dutch TTF, on Tuesday.

Make no mistake, that’s still very expensive gas — about five times higher than in 2019, when European gas prices first started creeping up. And crucially in terms of European industry’s global competitiveness, the price still considerably higher than natural gas in the U.S.

Nevertheless, it’s around half the price seen as recently as October, and almost five times lower than last August’s record-setting peak. 


Consumer impact


Falls in the wholesale price of gas won’t immediately translate into lower utility bills for business and domestic consumers in Europe, currently struggling to cope with elevated costs despite support from a range of government subsidy schemes. 

Craig Lowrey, principal consultant at the U.K.-based Cornwall Insight energy research firm, said the falls in wholesale prices would not immediately or automatically lead to a corresponding fall in people’s bills. Energy firms, which supply gas to domestic and business consumers, buy up gas on the wholesale market well in advance. 

“There has to be a note of caution regarding what we see in the market, certainly given how fast prices previously went up in such a short space of time,” said Lowrey. “Yes, we have seen them come down and at this point in time there are potentially grounds for optimism. However, this is a very long and very rocky road for the energy market — and unfortunately for customers’ bills — for the coming months and years.”

But there is no question that wholesale markets are seeing a “significant relaxation” — partly due to this winter’s abnormally warm weather, according to Georg Zachmann, a senior fellow at the Bruegel think tank.

The construction site of the Uniper Liquefied Natural Gas terminal in Wilhelmshaven, Germany


New import capacity for seaborne liquefied natural gas (LNG) is also helping to ease prices. New terminals, including in the Netherlands and Germany, will have a combined annual capacity of almost 40 billion cubic meters (bcm) by the end of 2023 — a little under 10 percent of what the EU consumed in 2021.

Meanwhile, “significantly stronger” reduction of demand across the EU — which fell by 20 percent between August and November — also helped calm markets, Zachmann said.


Resolving storage


Gas storage levels are higher than historical trends and are even rising slightly, with EU reserves 83.5 percent full on average, compared to 54 percent at this time last year — with stocks more than 90 percent full in Germany, Poland, Croatia, Denmark, Spain and Portugal, according to Gas Infrastructure Europe.

Tom Marzec-Manser, head of gas analytics at the Independent Commodity Intelligence Services, said it was “unusual” to see net EU-wide storage levels rising in January.

“The real concern for the market has not just been getting through this winter but about how we refill and brace ourselves for the winter commencing October 2023. The concern was that if we're over-reliant on storage this winter, refilling next year would be particularly difficult,” Marzec-Manser said.

It is now “plausible” that the EU could get to the end of winter with storage facilities half-full, he added, but this would require continued mild weather, sustained LNG imports and continued gas conservation efforts from consumers. That would be a “very good result,” easing pressure on European countries in the so-called gas injection season, when storage needs to be filled during spring and summer.

The EU imported 134.8 bcm of LNG last year, up from 81 bcm in 2021, tweeted Miguel Gil Tertre, chief economist for the EU's Directorate General for Energy. That's helped replace the dramatic reduction in Russia pipeline gas, which used to supply 40 percent of the EU's demands and has now dropped to less than 10 percent.

Falling prices and slumping sales are bad news for Russia's Gazprom gas export monopoly. CEO Alexey Miller said this week that Gazprom's production fell by about a fifth in 2022 compared to 2021, and exports dropped by 45.5 percent.

But it’s far too soon to celebrate. A spring and summer scramble for scarce global LNG reserves is still likely, which could drive up prices again.

Gas demand in China, which has been suppressed by its zero-COVID policy, could surge as the country opens up and gets its economy moving, potentially tightening the market. However, a major uptick in COVID-19 cases in recent weeks has cast doubt on China’s economic trajectory this year.

German Chancellor Olaf Scholz seems to have gotten the message, urging citizens on Saturday to double down on saving energy — a task he said would “remain important in the coming months.”

Despite falling wholesale prices, the energy emergency isn't over yet.

"Is this crisis averted? Are we out of the woods? No," Marzec-Manser said.

Newsletter

Related Articles

Hong Kong News
Close
0:00
0:00
China is opening up for foreign investors.
Tesla reported record profits and record revenues for 2022
Prince Andrew and Virginia Giuffre Photo Is Fake: Ghislaine Maxwell
Moonwalker Buzz Aldrin Gets Married On His 93rd Birthday
Federal Reserve Probes Goldman’s Consumer Business
China's first population drop in six decades
Microsoft is finalising plans to become the latest technology giant to reduce its workforce during a global economic slowdown
China's foreign ministry branch in Hong Kong urges British gov't to stop the biased and double standards Hong Kong report
China relaxes 'red lines' on property sector borrowing in policy pivot
Tesla slashes prices globally by as much as 20 percent
Japan prosecutors indict man for ex-PM Shinzo Abe murder
Vietnam removes two deputy PMs amid anti-corruption campaign
1.4 Million Copies Of Prince Harry's Memoir 'Spare' Sold On 1st Day In UK
After Failing To Pay Office Rent, Twitter May Sell User Names
FIFA president questioned by prosecutors
Britain's Sunak breaks silence and admits using private healthcare
Hype and backlash as Harry's memoir goes on sale. Unnamed royal source says prince 'kidnapped by cult of psychotherapy and Meghan'
China’s recovery could add 1% to Australia’s GDP: JPMorgan 
Saudi Arabia set to overtake India as fastest-growing major economy this year 
China vows to strengthen financial support for enterprises: official
International medical experts speak out against COVID-19 restrictions on China
2 Billion People To Travel In China's "Great Migration" Over Next 40 Days
Google and Facebook’s dominance in digital ads challenged by rapid ascent of Amazon and TikTok
Flight constraints expected to weigh on China travel rebound
Billionaire Jack Ma relinquishes control of Ant Group
FTX fraud investigators are digging deeper into Sam Bankman-Fried's inner circle – and reportedly have ex-engineer Nishad Singh in their sights
Teslas now over 40% cheaper in China than US
TikTok CEO Plans to Meet European Union Regulators
UK chaos: Hong Kong emigrants duped by false prospectus
China seeks course correction in US ties but will fight ‘all forms of hegemony’, top diplomat Wang Yi says
China will boost spending in 2023
African traders welcome end of China’s Covid travel curbs
France has banned the online sale of paracetamol until February, citing ongoing supply issues
Japan reportedly to give families 1 million yen per child to move out of Tokyo
Will Canada ever become a real democracy?
Hong Kong property brokerages slash payrolls in choppy market
U.S. Moves to Seize Robinhood Shares, Silvergate Accounts Tied to FTX
Effect of EU sanctions on Moscow is ‘less than zero’ – Belgian MEP
Coinbase to Pay $100 Million in Settlement With New York Regulator
Preparations begin for Spring Festival travel rush
Domestic COVID-19 drug effective in trial
HK to see a full recovery, John Lee says in New Year message
Bargain hunters flock to last day of Hong Kong brands and products expo
Hong Kong aims for January 8 reopening of border with mainland China
Chinese Revenge Travelers Will Steer Clear of a Hostile US
FTX assets worth $3.5bn held by Bahamas securities regulator
2023 Will Be the Year of the Electric SUV
A Republican congressman-elect is under investigation in New York after he admitted he lied about his education and work experience.
Brazilian football legend Pele, arguably the greatest player ever, has died at the age of 82.
Hong Kong to scrap almost all its Covid rules
×