Gas prices are falling, but the problems are "still far from behind"

Gas prices are falling, but the problems are “still far from behind”

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After falling below 100 euros per megawatt hour (MWh) earlier in the week, the price of European gas continued to fall this Tuesday, returning to the level of last June. However, its price remains double that at the beginning of the year and is strongly penalizing the industry of the Old Continent. explanations.

The price of gas is once again below the symbolic bar of 100 euros per megawatt hour (MWh), that is, three times cheaper than the peak observed last summer. A continued decline for several weeks that was confirmed on Tuesday, October 25, as the Dutch TTF futures contract, a market for shippers and buyers that acts as a reference for natural gas prices in Europe, was trading at 93.50 euros.

“We are coming out of a period in which prices were at levels that we would never have imagined, levels linked mainly to the conflict in Ukraine and the violent post-Covid economic rebound of 2021,” explains Raphaël Trotignon, head of the Energy division. for Reexecode signature.

“Gas prices, like oil prices, are based on a balance between supply and demand. However, today the demand is weak, in particular due to the exceptionally mild temperatures in October, while the supply is abundant with full tanks, which also creates logistical problems. “, explains the consultant Nicolas Meilhan, engineer and specialist in energy.

From fear of running out of gasoline to gasoline overflow

After fearing a shortage linked to the energy war waged by Vladimir Putin, Europeans today have a gas with which they no longer know what to do. As of October 19, the EU had filled its stocks to almost 93%. LNG (liquefied gas) deposits, demand for which exploded as winter approached to replace Russian gas, are saturated.

Result: LNG tankers have to circle the water while they wait to unload their tanks. Last week, more than 35 ships were on standby in the Mediterranean and off Spain, the best-endowed country in Europe with six LNG terminals. A “completely exceptional situation”, traders and operators told Reuters.

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At the same time, European citizens have used little of their heating since early autumn due to very high temperatures for the season. In France, October 2022 could even become the hottest on record.

The drop in gas consumption is especially striking in Germany, since it has fallen by 21% in the last three months compared to the same period in 2019.

Mid-staff industrial activity

On the other hand, it doesn’t make sense to expect your energy bill to go down next month. European households benefit from price shields and already pay much less for gas than its real price. As for the companies, they sign long-term agreements. Therefore, only the groups that are currently renegotiating their contracts could benefit from this situation.

While the reduction in gas prices may seem like good news for the EU27, its price is still double what it was at the beginning of the year and is forcing companies to produce less in a context of a global economic slowdown.

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“High gas prices and government sobriety instructions have led manufacturers to consume less. Some have even been forced to stop producing, in particular industries that use a lot of gas”, recalls Nicolas Meilhan. “50% of the total aluminum production capacity in Europe has been lost and 70% of fertilizer production has been stopped or slowed down,” says the expert.

In France, Duralex, the famous glass manufacturer, recently announced the closure of its production furnace at the plant in Chapelle-Saint-Mesmin (Loiret) from 1Ahem November for a period of four months.

“This impact on energy prices is quite directed at Europe and unfortunately it is a monstrous lack of competitiveness compared to the United States”, where gas prices are five times lower, Raphaël Trotignon points out.

A warm winter, and after?

In any case, this situation gives water to the mill of Germany, which opposes the limitation of gas prices desired by France. In fact, why limit prices at the risk of creating a movement of concern among suppliers when prices are falling?

The question should be at the heart of the meeting scheduled for Wednesday in Paris between French President Emmanuel Macron and German Chancellor Olaf Scholz.

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Last Friday, European leaders approved a roadmap to reduce energy costs, but it will be difficult to find mechanisms that work for all member states.

Meanwhile, the Twenty-seven have agreed on some fundamental principles: to encourage joint purchases or even “speed up their negotiations” with “reliable” producing countries such as Norway and the United States.

Although gas prices have trended downward in recent weeks, they remain highly volatile on the markets and, as the conflict in Ukraine deepens, supply is not guaranteed in the medium term.

“The gas problem is still far from being left behind”, warns Raphaël Trotignon. “Cette année, nous avons pu remplir nos réservoirs en grande partie grâce au gaz russe avant les interruptions majeures de livraisons. Mais la question pose plutôt pour les prochains hivers. Sera-t-on capable of reconstitute les stocks en se passant totally de Russia ?”

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