Warm weather and the impact of the energy policy of the European Union and its member states have caused the price of gas to fall for almost two months. In anticipation of a mild winter and the introduction of the toughest European measures to date, gas fell in price by almost a third this week. Whether these measures ultimately lead to the desired result remains to be seen.
The price of gas has been falling since the end of August, but this fall accelerated last week. There was a 29,9% price difference between the highest and lowest point this week. On Wednesday, October 12, the gas price was at its highest point of the week at €160,19 per MWh. On Tuesday, October 18, a megawatt hour of gas cost €112,33, which was the lowest since June 14 of this year. At the time this article was written (Wednesday, October 19), a megawatt hour of gas costs €120,33.
The price of gas took a huge dive this week. Mild weather has been keeping gas prices in check throughout October. Last week, favorable long-term weather forecasts were added. According to the latest expectations, we are heading into a mild winter, which means that heating systems probably won't have to work as hard. The European gas strategy also appears to be paying off. Well-stocked gas reserves ensure stability on the market and most European countries have now implemented price suspensions. In addition, it has been clear for weeks that the EU will intervene heavily in the gas market.
Brussels hangs above the market
A concrete elaboration of this hung over the market last week, but on Tuesday, October 18, the EC finally announced the long-awaited measures. It remains to be seen how the market will structurally respond to the new proposal. The day after the announcement (October 19), the price on the TTF rose by approximately €6.
The core of the new European gas policy is that the member states jointly purchase the raw material. This intention has been around for some time, but so far countries have only cooperated voluntarily. The EC proposes to make the joint procurement of 15% of the gas reserves mandatory. The proposal is intended to prevent various European countries from raising the price of gas by bidding against each other.
Limits and target prices
The European Union (EU) is taking a cautious approach to the price of LNG. Although there will be no hard price ceiling, a European target price will be drawn up. The EU is taking harder action in the field of natural gas. A new benchmark from the EU must compete with the TTF. But the committee also wants to be able to intervene on the course of this existing benchmark. Even before the new EU benchmark can be put into use, there will be a 'dynamic' price limit that should control the prices of the TTF.
This limit will take the form of temporary maximums, which will depend on the situation on the market. By banning transactions above a certain limit, the committee wants to dampen the worst extremes in the market. Critics argue for caution around price ceilings. Intervening too hard can affect the security of gas supply, because suppliers do not want to sell their gas below market value. However, the ECF believes it has found Columbus' egg. Because the price ceiling is flexibly adjusted to market developments, it must be able to guarantee security of supply.
Savings
In addition, Brussels wants to tighten the guidelines for energy savings. There is currently a voluntary agreement between Member States to reduce gas consumption by 15%. The EC is considering making this savings percentage mandatory. The exception for households included in the current agreement no longer appears to be a sacred principle. Because the committee is considering not necessarily limiting consumer consumption, including restricting the heating of swimming pools and terraces. Brussels appears to be following the previous advice of the International Energy Agency. This organization noted earlier this month that the price ceilings that various European member states have set do not invite further energy savings. There are fears that disappointing results in this area could undermine the security of gas supply.