Why are gas and electricity so expensive in Europe?

Gas and electricity prices in Europe are rising rapidly, and the approaching winter is putting additional pressure in this situation. On the other hand, governments in individual countries are looking for options to reduce the negative effects of rising prices.

The EUROACTIV platform examines in more detail what is happening in the energy market of the Old Continents and what steps the countries are taking in this direction.

Why is natural gas so expensive?

The price of natural gas in Europe has increased 4 times in the last 6 months, according to calculations by the International Energy Agency (IEA), and there are several reasons for this.

On the demand side, with the gradual economic recovery and activity from the pandemic and closures, blue fuel consumption has increased. Meanwhile, the continent’s reserves have fallen amid increased heat consumption over the last winter.

On the other hand, supplies were affected not only by the pandemic but also by problems with outdated infrastructure. Deliveries from Russia were delayed due to pipeline repairs, as well as a fire in August.

Liquefied natural gas (LNG), in addition to not covering the total shortage, continues to be more expensive.

And what happens to electricity?

Apart from the natural gas market and the electricity market, prices are reaching record highs. Contracts for the purchase of electricity in France for 2022 reach 109 euros per megawatt-hour, and in Germany – 105 euros.

“One-year electricity prices have doubled in most major markets and are currently at their highest level ever,” pointed out by the British bank Barclays.

The reason for this is the 80% increase in carbon payments in the European Union, as well as the increase in the price of coal and natural gas used for electricity production.

Is there light in the tunnel?

“Natural gas prices will remain high until the end of the upcoming heating season due to low levels of blue fuel stocks in Europe,” predicted by Fitch.

The IEA warns that “The European gas market may face an additional stress test due to unplanned supply disruptions and a sharp cold snap”.

What measures are governments taking?

Authorities in Spain have already decided to reduce the special tax on electricity consumption for businesses and households. France, for its part, has introduced subsidies of 100 euros for almost 6 million lower-income households.

Portugal has called for a price cap on the market, and Italy is also preparing for a similar move.

At the same time, the European Commission said on Wednesday that it would draw up a package of measures that EU countries will be able to take to deal with rising gas and electricity prices without violating the bloc’s energy market rules.

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