The price of gas has taken a clear step downwards this week. In particular, reports that a deal with Azerbaijan is approaching are putting pressure on the gas price. Meanwhile, electricity is quite expensive. Almost half of all electricity was generated with gas this week, because renewable sources produced little power.
The gas price has taken a clear step downwards. On Tuesday 29 October, gas was traded for €43,20 per megawatt hour. After that, the price dropped significantly. On Friday 1 November, the gas price was €39,18. On Monday 4 November, the price corrected again to €39,92.
The high price came after Norwegian state gas company Equinor cut production at one of its Sleipner B platforms after a fire alarm went off. This had a significant impact on price developments, as Norway supplies 30% of the gas to the European Union. Fears about weaker security of supply caused gas prices to rise sharply. This shows that the gas market is still characterised by a nervous undercurrent. According to analysts, there is a prevailing sentiment that Europe has come through the winters of the past two years mainly by luck. The last two winters have been milder than usual. If the coming winter turns out to be harsher, gas demand will increase significantly and it will then be more difficult to replenish reserves.
Confidence in supply is increasing somewhat
The price move lower this week is mainly due to reports that the European Union has come much closer to a major gas deal with Azerbaijan. This is significant, because the last European gas contracts expire in 2025. This means that Russia no longer has any obligations to supply the last bit of gas that the EU demands. Azerbaijan could absorb these volumes and possibly even supply a larger part of the Russian gas that is currently missing. According to investment bank Goldman Sachs, it is possible that the deal will bring the European gas price back to a level of €25 per megawatt hour.
In addition, the full reserves still provide peace. The filling level is still fluctuating around 95% and has only fallen by 0,1% in October since it reached its highest point. Because the autumn has been relatively mild so far, the gas reserves remain fairly stable. The filling speed is slightly lower than average, but that is not surprising in itself.
In addition, the LNG price has taken a step down. On Tuesday 29 October, gas was traded for €13,69 per MMBtu. On Monday 1 November, the price fell to €13,48. The effects of this are somewhat ambiguous. The level remains on the high side, which limits the downward effect on the gas market. However, the effect is not zero. The fact that the market is not tending upwards does create room for the decline.
Electricity price takes a big step upwards
While the gas price is falling, the electricity price was on the high side this week. On Tuesday 29 October the price of electricity reached the highest level of the year, €134,20. Only on Sunday 3 November the price fell below €100 and the price was €92,42.
Just like last week, low production from renewables is causing the higher electricity prices. Total production from solar and wind energy was 23,2%. Total production from wind energy came to 14,6%. Meanwhile, 8,6% of the electricity was generated by solar collectors.
Due to the low production from renewable sources, the power stations that run on fossil sources had to work overtime. In total, almost half of all electricity was generated by gas. Due to the relatively high gas price, this pushes up the electricity price considerably. Coal-fired power stations were responsible for 11,8% of electricity, while another 8% of electricity was generated from biomass.