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The price of natural gas in 2022 was primarily determined by Russia and deliberately manipulated. And it also made money from it. Russia’s state budget revenues from oil and gas grew by 28 percent last year, which is a year-on-year increase of 2.5 trillion rubles (roughly CZK 810 billion).
“Financial year 2022 was extremely successful for Russian exports. On the other hand, if there was a total interruption of supplies in March, and this was not ruled out at the time, the losses of the European economy would be many times greater,” says Jiří Gavor, director of the Association of Independent Energy Suppliers.
Since August, Russia has stopped sending any gas to the west through the Nord Stream 1 gas pipeline, and is also reducing volumes through the Yamal gas pipeline. However, Russia is compensating for the shortfall in supplies to Europe by increasing imports to China.
The price of gas on the European market is no longer controlled by the Kremlin. “Thank God, Russia miscalculated on all fronts. Firstly, in the fact that Europe will be paralyzed by all efforts to help Ukraine and by the threat of shortages of oil, gas and coal. That didn’t happen,” says Michal Macenauer, EGÚ Brno strategy director.
Other factors related to changes in the gas market will affect pricing this year. Since the beginning of the Russian invasion of Ukraine, Europe has been reducing energy dependence on Russia by supplying liquefied natural gas (LNG) from overseas.
The speed of building new LNG terminals and the global demand for LNG will thus drive the price. “This is mainly related to the revival or non-revival of demand for LNG in Asia, especially in China,” says Macenauer.
The global factor that will affect the demand for all commodities will be the development of the economic situation, especially in China.
A recovery in demand is expected during 2023, when all restrictions against the spread of covid-19 and their repercussions end. “The global factor that will affect the demand for all commodities will be the development of the economic situation, especially in China. Its problems do not only hold back its economy, but also reduce demand and thus energy prices,” explains Gavor.
Demand there should increase by nine to 14 percent year-on-year, according to Reuters. However, imports to the world’s second-largest economy would likely fall short of the record levels of 2021 due to high prices.
Another factor is the weather. “We can’t influence that one. It may happen that even if the climate is very kind to us now, in a few weeks it will stop blowing in Germany, there will be big frosts and the price will rise and become very volatile again,” Macenauer points out.
Furthermore, the price of gas will be determined by demand in industry, as in 2022 a number of companies limited production due to the high price of energy. The volume of gas that will remain in European reservoirs at the end of winter will also be a decisive factor. On February 2, 2023, there were 2,508 million cubic meters of gas in the Czech ones, i.e. 73 percent full. In contrast, on the same day last year, gas reserves were at 1,048 million cubic meters3i.e. less than half.
Sources of the electricity system in Europe will also be affected, especially nuclear power plants in France, whose production fell last year due to poor technical condition. “In 2023, securing new sources and developing global LNG demand will account for 80 percent of gas pricing,” says Macenauer.
The average price of natural gas in the period from 2017 until the beginning of the rapid increase in energy prices in August 2021 was 18.4 euros per MWh. However, from September to January 2023, the price average rose to 103 euros per MWh.
The price reached a maximum of 317 euros last August. “We experienced the biggest panic in the middle of 2022. Since then, we managed to save energy and fill the reservoirs with gas, and the panic stopped. The market has become convinced that there will be enough gas for the winter of 2022/2023,” says Macenauer, adding that the price reduction corresponds to this.
The relatively free market helped a lot, when the increase in price made it possible to withdraw a large amount of gas from the world by overpaying other customers.
But the problem did not lie in the fact that Europe could not ideologically or technically solve the supply from other than Russia. “The problem was from shock and unpreparedness. However, Europe reacted to it and continues to react very flexibly. The relatively free market helped a lot, when the increase in price made it possible to withdraw a large amount of gas from the world by overpaying other customers,” explains Macenauer.
According to him, the most likely scenario is currently the import of gas, when the Czechia has two LNG terminals and 16 million m3 daily steadily throughout the year. Under these conditions, the gas would last in the reservoirs for the entire next heating season. In case of an increase in imports in the summer months (June to August), 24 million m would flow to us3 daily.
If the Czechia had only one LNG terminal in Eemshaven, the Netherlands, imports would amount to eight million cubic meters per day. With the gas in the tanks, the Czechia would thus be able to get by until mid-November. However, if gas imports were to increase to the level of 24 million m3 in the summer3 daily, the gas in the tanks would last until January 29, 2024.
Map of European LNG terminals.
Last year, according to EGÚ Brno, the volume of LNG transported to the European Union (EU) and Great Britain increased by three quarters to 137 billion cubic meters per year. This year, EGÚ Brno anticipates that imports will almost double. It will gradually grow up to 260 billion m3 annually. The amount of imports will be affected by both demand and terminal capacity.
For Europe, LNG has become a key raw material in 2022, the import of which will continue in the following years. Alternative suppliers slightly boost exports. Except for Algeria, which is unable to increase exports due to increased domestic demand and insufficient investment in new deposits. In the case of Norway and Azerbaijan, however, it is only a matter of billions of cubic meters.
| Earth | Estimated gas exports to the EU and Great Britain in 2023 |
|---|---|
| Norway | 120 billion cubic meters per year |
| Mask | 10 billion cubic meters per year |
| Algeria | 35 billion cubic meters per year |
| Azerbaijan | 12 billion cubic meters per year |
Russian gas supplies to Europe decreased during 2022. Currently, transit through Ukraine via the Yamal gas pipeline and via Turk Stream for Hungary is only operating to a limited extent. The volume going to Europe will thus be around 10 billion m3 annually.
Gas will continue to be a commodity that will fundamentally influence the price of electricity. This year, its price will also be determined by the amount of electricity produced from RES, mainly from wind farms in Germany. The restarting of nuclear power plants in France will also have a share in the possible decrease or increase in the price. However, production is not expected to resume until the end of this winter.
We will probably never get to the value of 30 or 40, and most likely not even 90 euros.
From September of last year to January of this year, the average price per MWh of electricity was 256 euros. However, from 2017 to August 2021, it was at 46.3 euros. “The period 2017-2021 was specific in that it was not possible to build any source that had an acceptable return because the price of electricity was very low,” says Macenauer.
The European Commission is also considering the introduction of a price ceiling for electricity production, which would also have a positive effect on reducing the price. “We will probably never get to the value of 30 or 40, and with a high probability not even 90, euros. The resolution of the gas price will replace another growth factor – the rapid demand for decarbonisation,” adds Macenauer.
