Energy crisis: why the price of gas is skyrocketing again and why it is so worrying

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295 euros per megawatt hour (MWh). This is the price that the Dutch TTF futures contract reached yesterday, the benchmark in the European natural gas market. This very high level, which had not been reached since the sessions very volatile during the first weeks of the Russian invasion of Ukraine last spring, is the result of Russia’s energy blackmail against Europe.

295 euros per MWh, is below the record reached in mid-March, when the price of European gas was close to 335 euros per MWh. But this is still a level more than six times higher than prices seen a year ago, when the Dutch TTF futures contract stood at around €46 per MWh.

And the trend does not seem ready to reverse. Gazprom, the gas giant in the hands of the Kremlin, estimated on August 16 that the prices of gas in Europe it could increase by 60% to exceed 4,000 dollars (3,946.94 euros) for 1,000 cubic meters next winter.

More than 20% in one day

If wholesale gas prices shoot up again (more than 20% in a single day!) it is precisely because the Russian giant Gazprom is still planning to interrupt gas deliveries to the Old Continent, through the Nord Stream 1 gas pipeline, for three days . from August 31 to September 2, for reasons of ” maintenance “.

A “blatant attempt to exploit Europe’s dependence on Russian gas,” denounces Ludwig Möhring, director of the Association of German Oil, Gas and Geothermal Producers (BVEG), quoted by AFP.

According to him, a brief closure of Nord Stream 1, “wouldn’t make much of a difference”but this operation can generate two risks: that Russia “falsely claims that it cannot reopen the gas pipeline”, claiming a new technical problem. However, in normal times, this pipeline can transport 167 million cubic meters of gas per day according to Gazprom. This makes it the main infrastructure for exporting Russian gas to Germany and then to Europe. Second potential risk: that Russia closes its other gas pipelines that supply Europe.

Concerns around Nord Stream 1

It is not the first time that Europeans fear that the Nord Stream 1 will be inoperative after maintenance work. This concern had already materialized last July when the pipeline was closed from July 11 to 21 for long-planned maintenance work. In the end, the Russian giant Gazprom respected the schedule and brought the infrastructure back into service, but Moscow used the delay in the delivery of a German turbine, considered essential for its correct operation, as an excuse to reduce the flows of Nord Stream 1. to only 20% of its capacity.

Gas crisis between Berlin and Moscow: all about the turbine of discord

Since the beginning of the war in Ukraine, Russia has certainly used energy, and more particularly gas, as a geopolitical weapon against Western countries. Its objective: to divide the members of the European Union, for whom Russian gas represented 40% of total gas imports before the start of the conflict.

An objective that has already been partially achieved since Hungary, highly dependent on Russian hydrocarbons (80% of gas imports come from Russia), has chosen to go it alone by delivering more Russian gas, while the rest of the Twenty-seven trying, on the contrary, to wean ourselves off as quickly as possible, while the Kremlin voluntarily and gradually turns off the tap. Between January 1 and August 15, Gazprom’s exports fell 36.2% to 78.5 billion cubic meters, according to a press release from the gas giant.

The price of electricity also skyrockets

In this critical context, Bjarne Schieldrop, from the Swedish bank Seb, predicts an energy situation “extremely difficult” in Europe this winter, arguing that Russia could play “everything for everyone” further reducing natural gas exports, particularly to “as long as the weather forecast is really cold.”

Germany, whose reserves should be insufficient for next winter and the next, fears gas shortages. Enough to harm its industry, and more particularly the consumer chemical sector itself, which would cause a serious economic recession on the other side of the Rhine with a shock wave throughout the European Union, since the markets are interconnected. And, bad news, the country, which is trying to diversify its supply sources as much as possible, should not, a priori, be able to count on liquefied natural gas from Canada.

In addition, the increase in the price of gas automatically generates an increase in the price of electricity in the spot market, because the pricing mechanism is based on the last power plant called to meet demand, which is very often a gas…

Towards an inevitable recession?

Thus, the prices of electricity for delivery at the beginning of 2023 in Germany were boosted this Monday above 700 euros, while the historical norm is 40 euros per MWh, according to Bjarne Schieldrop, from the Swedish bank Seb. For electricity in France at the beginning of next year, the MWh reached 840 euros.

Since then, “The recession in Europe is a certainty”, believes Edward Moya, an analyst at Oanda. These worrying economic prospects have caused a drop in the price of a barrel of oil

In France, Bruno Le Maire, Minister of Economy and Finance, assured in the columns of the newspaper southwest that the bonus of 30 euro cents per liter of fuel would be maintained, which will come into force at the beginning of the school year, despite the drop in the price of gasoline at the pumps.

(with AFP)