“The Lowest Gas Prices in Two Years: Europe’s Dependence on Russian Gas Largely Over”

The price of a megawatt hour of gas fell by almost 9 percent to 25.35 euros on Thursday. That is the lowest level since June 2021. Last year the gas price shot up sharply because of the Russian invasion of Ukraine and the sharply reduced gas supplies from Russia to Europe. In August, peaks of more than 340 euros were even reached.

Dependence on Russian gas largely over

But gas supplies are now better than usual for this time of year and LNG imports from abroad are increasing. Europe’s dependence on Russian gas is largely over. This has led to a drop in gas prices this year by approximately 66 percent. Households that have helped to save on gas consumption recently are also noticing this in their wallets because energy rates are falling and permanent contracts are being offered by energy suppliers again.

Some analysts think that gas supplies could be completely filled again in August, which would be well before the heating season in the autumn and winter. There is therefore even speculation that gas prices may even briefly turn negative this summer, for example because a lot of electricity is generated with solar and wind energy and gas consumption is still limited. That would mean that producers give money to traders to purchase gas. This happened very briefly in the United Kingdom in 2006.

Matthias Detremmerie, trader at energy supplier Elindus, confirms the current pressure on prices: “Today there is a large and permanent supply and little global demand” for gas. The trader expects prices to remain low in the coming months. Many of the problems that drove up prices last year are likely to occur less this year. Last summer, for example, gas prices were pushed up by, among other things, the extreme drought, as a result of which the level of the Rhine was too low and the supply of coal was threatened. But the levels of the Rhine are much higher this year at the start of summer, Detremmerie notes.

In the medium term, gas prices will still remain higher than before the energy crisis. For example, the gas price for 2024 will be around 48 euros per megawatt hour. It is true, according to the trader, that the market is not very sensitive to news from the war in Ukraine. “With all the announcements and investments, it looks like we’re ahead of Putin there and have asserted our own independence.”

China

The market is now looking mainly at China and to what extent the economy is picking up again. More demand for LNG from China could influence global demand for natural gas and therefore prices, it is said. “China rather than Russia holds the key,” explains Detremmerie. Although, according to the trader, this will most likely never again lead to the extreme increases that we experienced last year.