After a series of reports on gas price hikes, are better times finally coming?

We have heard nothing but reports of energy prices, including natural gas, going up recently. Although its value is likely to remain under pressure for some time, positive news about a possible drop in prices are gradually appearing. Although we are talking about a horizon of several years, this news nevertheless represents the light at the end of the tunnel that has been missing from the forecasts so far.

The reduction in prices is expected to come thanks to the construction of European liquefied natural gas (LNG) terminals. Price relief could be realistic as early as 2024, according to a study by the University of Cologne's Energy Economics Institute (EWI) commissioned by the German gas association Zukunft Gas, with prices reaching levels comparable to 2018 by around 2026 if Russia is at least partially involved in the trade.

 

Reducing dependence on Russia

It is no secret that Europe wants to get rid of its current dependence on gas from Russia, including through the US. The study estimates that it could become the EU's largest supplier by 2030. According to EWI, last year European countries took as much as 147 billion of the 361 billion cubic metres of gas from Russia, 82 billion from Norway and 22 billion from the US. In the scenario that Russia is not eventually involved in EU off-take, the imported volume from the US could already amount to around 130 billion cubic meters in 2026. However, the importance of Qatar, with which European countries are currently negotiating, should be limited, according to the Institute's results.

 

Without Russia, prices will rise

EWI does not expect wholesale gas prices in Northern Europe to return to 2018 levels, when they averaged the lowest in 20 years at the Title Transfer Facility (TFF) trading hub in the Netherlands, if Russia is completely excluded from the trading. Should this scenario occur, EWI expects prices to return to 2021 levels by 2026 in the low demand case, and to 2030 in the high demand case. "But with globally falling demand, the 2018 price level can be reached by 2030 even without Russian gas," the association's head Timm Kehler said at a press conference.

 

Price unification

The rapid construction of LNG terminals in Europe should help to unify gas prices in Europe and Asia, Kehler further stated. According to TFF data, the price level for 2018 stood at €24 per megawatt-hour and €54 per megawatt-hour in 2021, when the full-year average was the highest in the last 2O years. The construction of LNG terminals has been initiated by European countries due to the uncertainty of supplies from Russia following the outbreak of war in Ukraine and the subsequent sanctions by Western states against the Russian superpower.  While in 2021 gas supplies via pipelines to the EU accounted for 75 percent, in the future they could drop to 40 percent.

 

 

Current price movements

Currently, the price of the futures contract for delivery in October 2022 is around €185 per megawatt-hour, according to the TTF. For comparison, in August it was EUR 346 per megawatt hour.*

wi plyn

Futures contract value development over the past two years. (Source: Theice.com)

 

The reality may be different

It should be noted, however, that the Institute's study explored various possible scenarios with high and low gas demand and with Russia's full, partial or no participation in European trading. It is therefore important to bear in mind that these are only model situations, the real evolution of which will ultimately depend on the actual development of prices, demand, and import capacity.

                                                                                                     

Olivia Lacenova, analyst at Wonderinterest trading Ltd.

 

* Past performance is no guarantee of future results.

 

This text constitutes marketing communication. It is not any form of investment advice or investment research or an offer for any transactions in financial instrument. Its content does not take into consideration individual circumstances of the readers, their experience or financial situation. The past performance is not a guarantee or prediction of future results.

🍪 Cookies

We use cookies to store, access and process personal data to give you the best online experience. By clicking Accept Cookies you consent to storing all cookies and ensure best website performance. You can modify cookie preferences or withdraw consent by clicking Cookie Settings. To find out more about cookies and purposes, read our Cookie Policy and Privacy Notice.

Cookies settings


Cookie Control

What are cookies?

Cookies are small text files that enable us, and our service provides to uniquely identify your browser or device. Cookies normally work by assigning a unique number to your device and are stored on your browser by the websites that you visit as well as third-party service providers for those website. By the term cookies other technologies as SDKs, pixels and local storage are to be considered.


If Enabled

We may recognize you as a customer which enables customized services, content and advertising, services effectiveness and device recognition for enhanced security
We may improve your experience based on your previous session
We can keep track of your preferences and personalize services
We can improve the performance of Website.


If Disabled

We won't be able to remember your previous sessions, that won't allow us to tailor the website according to your preferences
Some features might not be available and user experience reduced without cookies


Strictly necessary means that essential functions of the Website can not be provided without using them. Because these cookies are essential for the properly working and secure of Website features and services, you cannot opt-out of using these technologies. You can still block them within your browser, but it might cause the disfunction of basic website features.

  • Setting privacy preferences
  • Secure log in
  • Secure connection during the usage of services
  • Filling forms

Analytics and performance tracking technologies to analyze how you use the Website.

  • Most viewed pages
  • Interaction with content
  • Error analysis
  • Testing and Measuring various design effectivity

The Website may use third-party advertising and marketing technologies.

  • Promote our services on other platforms and websites
  • Measure the effectiveness of our campaigns

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 92.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.