Is Europe’s Energy Crisis Ending?

October 27, 2022

Chris Giles in Financial Times (Paywall):

On Monday, the wholesale spot price of European natural gas went negative. For an hour, suppliers were willing to pay almost €16 to someone able to suck up a megawatt hour of gas, about the equivalent of an average UK household’s monthly consumption. It was a remarkable turnround for a market that saw record prices of over €300/MWh towards the end of August.

Of course, there were special forces at work. Although the negative price was recorded on the main Dutch benchmark for European gas, it was not seen everywhere across the continent. It lasted for one hour only and a more standard spot price now around €50/MWh remains twice the norm for European gas. And it occurred because liquefied natural gas supplies keep arriving in Europe when storage facilities are effectively full.

But it is important not to get too distracted by these caveats. All European gas prices have tumbled since Vladimir Putin decided to stop supplying the continent through the Nord Stream 1 pipeline at the end of August. Day-ahead prices are similar to the hourly rate of €50/MWh, month-ahead prices for November are €100/MWh, less than a third of the peak, and future prices for November 2023 are also down from almost €300/MWh to around €140.

It goes without saying that the tumbling cost of gas was neither Putin’s intention nor the consensus expectation when the Russian president weaponised European gas supplies during the summer. At the time, sector specialists expected wholesale prices to shoot higher and industry was worried. The voice of German industry, the BDI, warned of a “massive recession”. It was economists who came closest to understanding the likely effect of Putin’s energy aggression; people and industries tend to respond to price incentives so they predicted that consumption was likely to fall.


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