Energy costs: Gas price falls to February level

The downward trend in gas prices on the wholesale market continues. The futures contract has fallen to its lowest level since the beginning of the war. Economics Minister Habeck does not expect costs for consumers to fall until the end of 2023.

The price of European natural gas has continued its downward trend of the past few trading days. Today, the futures contract TTF for Dutch natural gas fell as low as 76.18 euros per megawatt hour (MWh). European natural gas was last this cheap in February – before the start of the Russian war of aggression in Ukraine.

Levels rise again

The gas price has now fallen eight trading days in a row. Since mid-December, the TTF futures contract has fallen by around EUR 60 per MWh. For comparison: In the summer it had reached a record high of 345 euros per MWh and had cost more than five times as much. At that time, a stop in the supply of natural gas from Russia triggered a rapid rise in the price of natural gas.

The main reason for the gas price, which is now falling again, is the mild temperatures, which keep the consumption of natural gas comparatively low. Most recently, the temperatures were significantly higher than in the middle of the month, when there was permafrost in large parts of Germany. Thanks to the currently favorable weather, natural gas is now being stored in Germany again.

According to the latest data from the European storage association GIE, the filling level in all German storage facilities at the beginning of the week was 88.62 percent – an increase of 0.41 percentage points compared to the previous day and the sixth increase in a row. In addition, significantly more energy has recently been generated from wind power, which slows down the consumption of gas to generate electricity. Added to this are the savings made by industry and private households.

End user costs will remain high for the time being

Despite the recent relaxation, the price of European natural gas is still at a comparatively high level. In 2020, the TTF futures contract was still below the EUR 20 mark. This primarily affects large customers whose supply contracts are based on futures. On the so-called spot market, gas is offered that you buy today and purchase tomorrow.

For the time being, the price developments on the wholesale market say nothing for end consumers. They have no direct impact on their gas bills, as many suppliers have long-term contracts. According to the comparison portal CHECK24, the average gas price for consumers even rose in December after falling slightly in November.

According to CHECK24, a model household with a consumption of 20,000 kilowatt hours (kWh) currently pays an average of 3688 euros per year for gas. This corresponds to an average price of 18.4 cents per kWh. That’s 16 percent below the September peak, but the costs remain enormous. In December 2021, the annual gas price was 2036 euros – almost 45 percent less.

Habeck expects prices to fall

According to Economics Minister Robert Habeck, people in Germany will have to reckon with high gas prices for another year. “When will prices drop? I hope that it will be better towards the end of 2023, even if not at the level of 2021,” said the Greens politician to the dpa news agency. “We will have to endure higher prices throughout the year.” After that, the infrastructure will probably be developed to such an extent that sufficient replacement for the missing Russian gas will flow to Germany and the prices will regulate themselves again.

One answer to the high prices is the gas price brake, which artificially lowers a certain contingent of gas for consumers to a price of 12 cents per kilowatt hour by spring 2024. Above all, however, the infrastructure must be further expanded, stressed Habeck. “The prices are so high because half of the gas that Germany consumes was cut off by Putin’s supply freeze, and we had no supply infrastructure apart from the pipelines.”

Floating terminals for liquefied natural gas (LNG) should remedy the situation. Shortly before Christmas, the first LNG gas was fed into the German grid at the Wilhelmshaven terminal. “If we manage to continue to expand at the pace now presented, then we will reconnect Germany to the world market,” affirmed Habeck. “And then we will also get the world market prices, which are well below what we have now.”

Federal Network Agency: The situation is tense

Habeck sees the supply for the current winter as secured because of the storage levels. If the reservoirs are still 40 percent full at the beginning of February, then things are looking good for the winter of 2023/24, he said. “If the conditions stay the way they are, we won’t have a gas shortage. By that I don’t mean the weather, but the willingness of citizens and industry to save, the high level of storage and the supply from non-Russian countries.”

In the event of a gas shortage, the gas supply for companies would have to be rationed – but according to Habeck it doesn’t look like that at the moment. The Federal Government and the Federal Network Agency repeatedly appeal to consumers and the economy to use gas sparingly so that fuel does not have to be rationed. Habeck has the impression that the citizens are doing well. “The fact that we are in this position is because the Germans saved on gas in the fall,” he emphasized.

An analysis by the Federal Association of Energy and Water Management (BDEW) also shows a change in behavior. Since September, consumers have consumed eight percent less than during the autumn heating periods with similarly cold days. But: The Federal Network Agency “continues to assess the situation as tense and cannot rule out a further deterioration in the situation.” According to the current management report, the temperature-adjusted gas consumption in the 49th and 50th calendar week was only 12 percent below the reference value and thus in the critical range.