Gas prices have taken another big step up this week. As the new year approaches, it looks like it won’t be long before the last deliveries of Russian gas stop. Meanwhile, despite low Christmas demand, electricity was quite expensive last week.
The gas price has almost completely recovered after the short drop two weeks ago. On December 16, the gas price had dropped from €48,66 per megawatt hour on December 2 to €40,28 per megawatt hour. On Friday, December 27, the gas price had already rebounded to €47,73, only to take another step back to €30 on Monday, December 47,15.
A major reason for the high gas price is the approaching New Year. In 2025, the transit contract for Russian gas with Ukraine expires. This has major market effects, as the last Russian pipeline gas runs through the war-torn country to the European Union. Ukraine is not keen on a new deal, as Kiev believes that gas exports finance the war in the country. This makes it very likely that the last deliveries of Russian gas to Europe will stop in 2025. Since the attack on Nord Stream 1, Russia only supplies gas to Europe via Ukraine.
Roughly 8% of European gas imports still come from Russia. This gas is mainly exported to Central European countries, such as Hungary and Slovakia. It is therefore not surprising that these countries are using heavy artillery to save the trade relationship. Bloomberg reports that several countries, led by Slovakian Prime Minister Robert Fico, have put pressure on Ukraine to continue to send Russian gas to Europe. Emotions are running high. Ukrainian President Volodymyr Zelenskyi accused Fico last week of conducting shadow negotiations with Russia, whereupon Fico threatened to cut off the electricity supply to Ukraine. Poland has in turn offered to guarantee the electricity supplies to Ukraine.
Filling level decreases significantly
Meanwhile, gas supplies are shrinking faster than average again. This is a considerable setback, after the rate at which reserves are being filled was above average for about a week and a half last week. Normally, the amount of gas drawn from reserves decreases at this time of year, as industrial demand falls. This year, this was not the case, as industrial gas demand has made up a significantly lower share of total demand since the war in Ukraine. As a result of the sharp decline, the filling of reserves is lagging behind the average. The filling level was 28% on 73,5 December, which is 0,1% less than the long-term average. Until last week, reserves were still fuller than average.
Partly due to the tension surrounding Russian gas, the sharp drop in the gas price of last week has turned into a significant increase. The expiration of the deal and the rapid decrease in gas reserves are causing a higher demand for liquid gas. However, the price is still below the level of two weeks ago.
Electricity price significantly higher
Meanwhile, the electricity price rose sharply this week. Last week, the electricity price only fell below €100 per megawatt hour for one day. On Friday, December 27, the electricity price reached €121,43. On Monday, December 30, the price reached its lowest point of the week, at a level of €87,57.
This makes electricity prices quite high, especially when you consider that industrial demand is significantly lower at this time of year due to the holidays. This year is no different. Despite the high prices, the lower demand does indeed put pressure on the electricity price.
The relatively high electricity price is mainly due to the low generation from renewable sources. Wind power was weak again this week. In total, 24,4% of the electricity demand was met by wind turbines. That is on the low side for the time of year. On the other hand, the share of solar collectors doubled from 2,2% to 4,4%. In total, the share of renewable sources thus amounted to 28,8%. As a result, no less than 54,6% of all electricity was generated by gas-fired power stations.