Cheaper gas saves supply chains

Author: Konrad Potocki

There is good news coming out of European markets regarding gas prices. All indications are that European stocks have not run out over the winter season and that storage facilities are still full. On the Dutch short-term contract market, the price per megawatt hour has just dropped below €40. This is the lowest level since August 2021.

The drop in gas prices will certainly please continental suppliers, transporters, and the entire supply chain. And, of course, consumers. In the long term, it could stop costs from rising for producers and distribution companies. 

The scale of the price drop is best demonstrated by the fact that, following the outbreak of war in Ukraine, prices skyrocketed reaching up to €300 per megawatt-hour (MWh) on exchanges. Experts believe that the price of gas could continue to fall. – Taking into account the cost of processing the liquefied gas we are currently importing into Europe, I expect that the price of this raw material will soon fall to as low as €30 per megawatt hour, says Professor of Economics Machiel Mulder from the University of Groningen.

Fearing – and rightly so – the drastic consequences of stopping gas supplies from Russia, European governments have started importing LNG in large quantities. Storage facilities filled up, the winter turned out to be mild and the Old Continent probably avoided a large-scale energy crisis. Indeed, according to the latest data from Gas Infrastructure Europe, European storage facilities are around 65% full. However, experts warn that the market may not immediately feel the drop in crude prices, as investors will want to get rid of stocks purchased at much higher prices. – Buyers pumped gas into the system in the summer fearing that crude prices would be higher in the winter, but this did not happen, says Sindre Knutsson, Vice President of Rystad Energy AS.