EU gas prices plummet to pre-Ukraine war levels

Gas prices tripling is 'within realm of possibility' says expert

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Gas prices in Europe have dropped to levels that have not been since before Russia launched its invasion of Ukraine back in mid-February 2022. Russian President Vladimir Putin’s war in Ukraine and his supply cuts to Europe have sent prices soaring over the last 10 months, sparking a global energy crisis which has had a huge knock-on impact on billpayers across the continent, including the UK.  

But even though Russia is hardly sending any gas at all to Europe at present (it supplied 40 percent of Europe’s gas before the war), warmer weather across the continent has appeared to ease prices, calming fears of suspected shortages. 

The European gas contract for the month ahead dropped to €76.78 (£68.07) per megawatt hour on Wednesday, the lowest price seen in over 10 months. before closing at a higher price of €83.70 (£74.20), according to the data company Refinitiv. 

However, while prices may have dropped, this is not expected to lower household energy bills any time soon. This is despite the fact that rising gas prices are much to blame for bills costing double the amount they were last year on average. 

Dr Anna Valero, a Senior Policy Fellow at the LSE’s Centre for Economic Performance, told “My understanding is that the prices dropped due to lower demand (due to mild weather and demand management in EU countries) – but this is not expected to result in much cheaper energy bills for the foreseeable future as gas prices are expected to remain high over the coming year – the UK still relies on gas imports.

“Suppliers buy energy in advance, and Ofgem (the Government’s energy regulator) determines the cost of buying energy from the market by tracking wholesale prices ahead of the next price cap. The price cap is set to rise to £4,279 in Jan 2023, though the energy price guarantee (EPG) protects households (typical household bill not expected to exceed £2500 until April 2023). The next quarterly price cap update will be on 27 February 2023.” 

According to Livia Gallarati, a Senior Analyst at Energy Asepcts, European gas prices have fallen sharply over the last few months due to a “lucky combination of factors”.

She told DW News that these include “unseasonably mild weather, limited competition from China, which helped Europe build stocks and therefore dragged prices lower.”

But she warned that now is not the time to get complacent, as prices may not stay this low forever. Ms Gallarati added: “There are a lot of factors that could lead to tight markets next winter in particular. That might mean prices could rise back up again. 

“For example, China is coming back to the market with the Covid situation easing over there. Industrial demand could be coming back in Europe now that prices are a little bit lower. We can’t rule out a cold spell in the winter in the next couple of months and also Europe will need to balance next winter with a lot less Russian gas than it ever did before.

All of this could mean we are facing a very hard situation and even in the longer term we need to consider what high prices are going to do to European industry, which is something will continue to face for many years to come.” 

This comes as Europe awaits several months of high domestic heating demand as the depths of winter is still yet to hit. While some industry bosses have warned over energy shortages in the coming months, they also fear this problem will not go away next winter either.

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Meanwhile, in the UK, gas prices have also plunged back from their highs that were seen earlier this year. The day-ahead gas price ended at 155p per therm on Wednesday, compared with 200p/therm at the beginning of 2022, and over 500p/therm in August.

Despite this, bills remain high and are set to increase in April when Chancellor Jeremy Hunt’s energy price guarantee increases. Dr Vallero warned: “In terms of household gas bills – a relatively high share of UK homes are heated using gas boilers (versus other European countries) – plus our homes are less energy efficient which means that we need to consume more of it.

“In April, the energy price guarantee (EPG) is set to become less generous, meaning that the level that the typical household bill will not exceed will go from £2500 to £3000 (with further support for some of the most vulnerable).”

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