European natural gas prices return to pre-Ukraine war levels

A worker past gas pipes connecting a floating storage and regasification unit ship with the mainland in Wilhelmshaven, northern Germany, on December 17, 2022. EU energy ministers are sparring over a proposed price cap on gas.

Michael Sohn | AFP | Getty Images

LONDON – European natural gas prices have plunged this week to levels not seen before Russia’s invasion of Ukraine.

Front-month natural gas futures on the Dutch Title Transfer Facility, the benchmark contract in Europe, fell in recent weeks to below 77 euros ($81.91) per megawatt hour, a level not seen since February – the start of the full Before large-scale war in Ukraine.

As of Thursday morning, they were trading at around 81.5 euros.

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At their peak in August, European gas prices soared above 345 Euro/MWh as Russia weaponized its natural gas exports to the rest of the continent in response to punitive EU sanctions and limited supplies due to extreme summer temperatures. increased the demand. ,

Rising prices have pushed up household energy bills and created a cost-of-living crisis in much of the continent.

However, unseasonably warm weather during the winter in most of northwest Europe has reduced heating demand and allowed the continent to refill its gas inventory after declines during several cold snaps over the past few months.

Goldman Sachs in November predicted a sharp fall in European gas prices in the coming months as countries gained a temporary upper hand on supply issues.

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“As a rule of thumb, a €100 per MW increase or fall in gas prices would change the gas bill of the euro area economy – gas consumption in 2021 – by an amount equivalent to about 3% of GDP. Once households and consumers bear the full cost of the change in gas prices,” Holger Schmieding, chief economist at Berenberg, explained in a note last month.

Analyst says Russia-Ukraine war unlikely to end in near future

“Since the EU imports some gas under long-term fixed price contracts, the actual impact on the gas import bill is not as clear…but since electricity prices are still largely linked to gas prices, The total pain of higher gas prices – and the relief of any reform – may be more pronounced than a rule of thumb.”

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The European Union last week agreed a temporary mechanism to limit exorbitant gas prices, which will come into effect on February 15.

The “market correction” mechanism will automatically be triggered if the front-month TTF price exceeds 180 Euro/MWh for three consecutive days, and if it exceeds the global LNG (liquefied natural gas) reference price by 35 Euro or deviates more and more. Same three days.

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