by Thomas Benedix, guest author of Euro am Sonntag
Mith the partial reopening of the Nord Stream 1 gas pipeline after the maintenance-related break in mid-July, the situation on the European gas market has eased to some extent, but nobody should feel safe. Because with a view to the coming months, the Russian President is likely to Wladimir Putin now trying to keep the uncertainty in the importing countries high for as long as possible. To put it briefly: the more worried the population in Europe is about possible supply bottlenecks, the more likely it is that solidarity in the EU member states will crumble.
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This works more effectively than with a one-off shock of a complete supply freeze, in that Putin controls the level of gas supplies in order to give customers a hard winter. The filling levels of the gas storage facilities in the customer countries are thus Moscow’s target value and the gas deliveries are simply a geopolitical instrument. The announced renewed maintenance of a compressor station for Nord Stream 1 at the end of August is exactly one of these pinpricks – which is why this complex of topics will keep us busy in the coming months.
Gas price on the futures market has quintupled since January
Economically, it can be stated that Germany is threatened with a recession due to the energy bottlenecks. It is true that politicians are currently busy looking for alternatives, but this will not change the fact that winter can at least be difficult and expensive, depending on the weather conditions. Gas is now five times more expensive than it was a year ago, nine times what it was before the pandemic. A megawatt hour currently costs a good 230 euros. The futures market also shows that market players expect prices to remain high. The December 2023 contract is currently at €200 – it has more than quintupled since the beginning of the year.
The planned LNG terminals in Wilhelmshaven and Brunsbüttel provide a bit of a remedy: the federal government and four major German gas importers recently reached an agreement to supply them. The first special ships for LNG imports are to be put into operation at both locations by the end of the year. Possibly far fewer ships dock than hoped. Because in the winter months, the gas has often already been contracted out, while in the summer a larger part of the available gas can be bought freely. What then threatens is a price competition with other customers, especially in Asia, for the gas capacities that are still freely available on the cash market. That could drive the price up further, similar to an auction.
New government gas surcharge hits end customers
It may be even worse for consumers because the federal government launched the gas levy at the beginning of August. This allows the energy companies that import gas at high prices to simply pass on the additional costs to the customers. This means that the companies can purchase the raw material almost without regard to the price, and the consumers then have the buck.
So far, so bleak. But there is also news that gives hope. Not only, but also because of the gas levy, the camps are currently filling up faster than initially expected. At the same time, imports have increased and exports – because Germany is both a gas importer and exporter, for example to the Czech Republic, Austria and Switzerland – have fallen somewhat.
And finally, there are increasing signs that consumption in Germany is falling somewhat. Gas consumption in August has so far been 23 percent below last year’s figure. This opens up the possibility of starting the winter with sufficient buffers. One thing is clear: Taking cold showers and heating less alone will not lower gas prices. These are likely to remain high until Europe is far enough to get a significant portion of its energy from renewable sources.
However, saving on gas consumption would help to avoid bottlenecks. Because if it really came to the point that gas would have to be rationed and allocated in winter, then the damage for the citizens, but also for the gas-intensive industries such as the chemical sector and the basic materials sector, would be immense.
Thomas Benedix
Senior Portfolio Manager Commodities at Union Investment
Benedix is responsible for fundamental analysis and the development of investment strategies in the commodities sector. Its price forecasts and investment signals serve as an input factor for the commodity funds, among other things. Union Investment is the fund company of the Volks- und Raiffeisenbanken. With currently around 416 billion euros in assets under management, it is one of the largest German asset managers for private and institutional investors.
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More news about the price of natural gas – Natural Gas
Image sources: Union Investment, Schroders
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