A worker walks past gas pipelines connecting a ship of the floating storage and regasification unit to the mainland in Wilhelmshaven, northern Germany, December 17, 2022. EU energy ministers are arguing about a proposed price cap for gas.
Michael Son | AFP | Getty Images
LONDON – European natural gas prices fell this week to levels not seen since the Russian invasion of Ukraine.
Front-month natural gas futures on the Dutch Title Transfer Facility, the benchmark contract in Europe, have plummeted in recent weeks, hitting a low below €77 ($81.91) per megawatt-hour, a level seen since February was no longer achieved – before the start of a full scale war in Ukraine.
On Thursday morning they were listed at around 81.5 euros.
At their peak in August, European gas prices surpassed €345/MWh as Russia’s arming of its natural gas exports to the rest of the continent in response to EU punitive measures and sky-high summer temperatures boosted demand while curbing supply.
Soaring prices have sent household energy bills skyrocketing and fueled a cost-of-living crisis across much of the continent.
However, unseasonably warm winter weather across much of north-west Europe has reduced heating demand and allowed the continent to replenish its gas supplies after being hit by drawdowns during several cold snaps in recent months.
Goldman Sachs in November forecast a sharp drop in European gas prices in the coming months as nations temporarily gain the upper hand over supply issues.
“As a rule of thumb, a €100 per MWh rise or fall in gas prices will change the eurozone economy’s gas bill – on gas consumption in 2021 – by an amount equivalent to almost 3% of GDP once households and consumers need to use the full bear the costs of the gas price change,” said Berenberg chief economist Holger Schmieding in a statement last month.
“With the EU importing some gas under longer-term fixed-price contracts, the real impact on the gas import bill isn’t quite as pronounced… but with electricity prices still largely tied to gas prices, the overall pain of high gas prices is — and relief from.” each correction – can be more pronounced than the rule of thumb suggests.
The European Union last week agreed on a temporary mechanism to cap excessive gas prices, which will come into effect on February 15.
The “market correction” mechanism is triggered automatically when the front-month TTF price exceeds 180 EUR/MWh for three consecutive days and when it deviates by 35 EUR or more from a global LNG (liquefied natural gas) reference price for the same three days.