The end of the energy crisis in Europe is on the horizon

By Chris GILESS

On Monday, the price of sale in majority of European natural gas resulted in negative rates. In an hour, suppliers were willing to sell for only 16 euros to anyone who wanted to buy a megalatre ( MWh) gas, about the average monthly consumption equivalent of a family in Great Britain. It represented an extraordinary turn for a market, which in late August marked record awards of over 300 euros MWh. Of course, certain factors influenced that price. Although the negative price was registered on the main gas stock market in the Netherlands, it was not seen all over the continent. The offer lasted for only one hour, and now dominates the standard price of about 50 euros per MWh. And that's because supplies of liquid natural gas continue to arrive in Europe even at a time when storage deposits are full. But it is important to avoid being distracted by such warnings. All European gas prices have dropped since Vladimir Putin decided to halt the continent's gas supply through the “Nord Stream 1” in late August.

Day prices are similar to an hour-long rate of 50 euros for MWh, the month's prices for November are 100 euros for MWh, less than one-third of the peak, and future prices for November 2023 are also projected to be falling from almost 300 euros to about 140 euros for MWh.

It is obvious that the drop in gas costs was neither Putin's goal nor the expectations of experts and leaders in the West, when the Russian president used as a means of blackmailing European gas supplies during the past summer. At the time, sector experts expected the retail prices to rise, and the industry was very concerned. German industry leader DUI warned a “major recession”. It was economists who got closer to the truth. According to them, people and industries tend to react to price incentives, so they predicted consumption would likely fall. Economic circumstances will still be difficult throughout Europe this winter, but that's exactly what happened. The ammonia manufacturing industry for chemical fertilizers, which requires too much gas, stopped operating a few days ago, and the main chemical is now imported by the United States. Meanwhile, to replace gas in electricity production, contaminated coal and clean renewable sources have been used.

An analysis by the consulting company “Amber” has discovered that between March and September there has been a record increase in production and electricity from the sun and from the wind across the EU. But the most impressive of all has been the decrease in gas consumption, both by industrial and domestic consumers, and not only because of warm weather.

In recent weeks, industrial use of gas in Germany has been around 2025 percent lower than a year ago. Even gas consumption by German families has been reduced to similar amounts, while families are struggling to see how far the heaters can continue without turning on. True, the dominant view in the energy sector is that although this winter there will be much gas to avoid shortages and power cuts, real concern is next winter, as gas deposits will not be able to replenish next summer without the supplies usually coming from Russia. It's not often that I give you good news, but I judge that these predictions are likely to be more pessimistic than they should be. The signal that gave the significant price cut will encourage more investments in liquefied natural gas terminals and interconnection networks across Europe to create a common gas market.

But most importantly, higher prices will lower the demand for gas, and will encourage development and use of other power supplies. No one should be pleased why he is paying more for energy this winter. But the signal he gave Monday's price has done his job. He has forced Europe to adapt to new circumstances. In this respect, advanced capital economies are extremely successful. (Financial Times)