Gas is almost nine times more expensive than it used to be for years. The market is doing its job and governments are trying to adjust a bit. It is impossible to predict how that will turn out. The main trends in four charts.
1: High prices encourage alternatives
The overview of the gas flow to Europe shows that the supply from Russia has fallen sharply, but also that other suppliers have already absorbed a large part of that decline, especially with liquefied natural gas (LNG). Europe offers the most, so almost all LNG for sale in the world comes to European ports.
LNG fell slightly in June, partly due to a fire at an important factory in the US, but growth is expected in the coming months. This is partly due to the floating terminals that will be located in Eemshaven from September and together have a capacity of 8 billion cubic meters of gas per year – almost 7 percent of the supply through Nord Stream 1.
The gas supply from Norway has also started up again in recent weeks after maintenance work. And alternatives to Russian gas are not only sought in other gas. Coal-fired power stations are super profitable due to the high prices, so they are used all over the world.
2: Not all European countries are hit equally hard
Gas is not equally important in all European countries. The Netherlands and Germany use relatively much, while France, with its many nuclear power stations, is much less dependent on gas. In recent months, something has happened that has made some countries much more affected by the reduced Russian gas flow: the prices that Member States pay for gas have diverged since the war in Ukraine.
This is because the gas flow in Europe has been reversed. Instead of going from east to west, the gas flows from the LNG ports in the west but inland. The gas infrastructure is not always designed for this. The most striking example is the price difference between Great Britain and the Netherlands. Gas has been 70 percent cheaper on the other side of the North Sea in recent weeks, because a lot of LNG arrives in Great Britain. In an ideal market, such a price difference would quickly disappear, as British gas can flow to Europe via the pipeline through the North Sea. But in that direction the pipeline is not big enough for so much supply.
Should Russia completely stop the gas flow, this trend will become even stronger. Even the generous pipelines from the Netherlands, which together can transfer 35 billion cubic meters per year, could then prove insufficient to meet German demand. The trade seems to take this into account. Figures from ICIS, which analyzes the gas market, show that the price for gas to be delivered in Germany this winter is already a few percent more expensive than in the Netherlands.
3: European governments can partly control the market
Look at the development of gas storage in Europe and you will see the evidence that governments can intervene very effectively in the market. Despite high prices and declining volumes, stocks have continued to grow steadily in recent weeks. This is largely due to the European agreement that all reservoirs must be at least 80 percent full by the end of the summer.
All countries have managed to make that happen with rules and money. Now the European average is 65 percent, a week was added 2 percentage points, even during the closure of Nord Stream 1. At that rate, the 80 percent limit will be reached at the end of September.
4: There must and can still be considerable savings on gas consumption
Each member state must use 15 percent less gas in the next eight months, the European Commission said this week. That should be enough to get by without Russian gas. Protests followed by the countries that barely import Russian gas themselves. A graph recently published by think tank Breugel is interesting here: how much should countries save based on the amount of Russian gas that was burned until recently.
Two things stand out. Firstly, Eastern European countries have by far the greatest challenge. It also explains why Hungary recently tried to introduce a national gas export ban, in violation of European rules.
Secondly, the graph shows that countries such as the Netherlands, Belgium and Luxembourg have already succeeded in using less gas. So much so that they are already below target. This is partly due to the mild winter. But also the fact that the higher gas prices in the wholesale market are quickly passed on to consumers and small businesses. They were so shocked that they started using less.
In Germany, which uses only 3 percent less, this is also about to happen. If the German government deems the risk of shortages in the winter too great, Berlin will allow energy companies to open contracts and pass the high prices on to households and companies.
It is generally accepted that this leads to rapid savings, but also to a recession. Something that will affect the Netherlands as an important trading partner of Germany. So there is every reason to continue saving in the Netherlands. That is what energy minister Rob Jetten is working on. He has issued a tender for companies that are prepared to reduce their gas consumption. Whoever offers the largest reduction per euro will receive the compensation.