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Experts give hope: This is how the gas price can fall

2022-09-23T11:21:37.643Z


Experts give hope: This is how the gas price can fall Created: 09/23/2022, 13:16 By: Matthew Schneider Concrete gas supply promises from the potential supply countries are still a long way off. Why this is so - and where the gas could come from in the future. Munich – At 180 cents per kilowatt hour, the price of natural gas has increased ninefold within two years. This is due to the failure of


Experts give hope: This is how the gas price can fall

Created: 09/23/2022, 13:16

By: Matthew Schneider

Concrete gas supply promises from the potential supply countries are still a long way off.

Why this is so - and where the gas could come from in the future.

Munich – At 180 cents per kilowatt hour, the price of natural gas has increased ninefold within two years.

This is due to the failure of large deliveries from Russia.

There is hardly any improvement in sight in the short term - but researchers are optimistic about the future.

Where does the gas come from?

"In 2021, around 40 percent of European gas still came from Russia," explains Eren Çam, Head of Energy Resources at the Energy Economics Institute in Cologne (EWI).

"In addition, around 20 percent came from Norway and 13 percent from North Africa." 75 percent of the total deliveries flowed through pipelines: "Liquid gas (LNG) has to be cooled, shipped and regasified using a lot of energy, which makes it more expensive than pipeline gas," explains Çam.

Historically, Russian pipeline gas is associated with lower costs: "In 2018, gas cost between 2 and 2.5 cents per kilowatt hour on the exchange - on the futures market we are now at 30." This is mainly because Russian gas is now through LNG imports, for example from the USA and Qatar, must be replaced.

Changing providers at short notice is expensive.

LPG currently accounts for more than 30 percent of European imports, followed by pipeline deliveries from Norway with more than 25 percent and Russia with less than 15 percent.

Why don't we conclude gas supply contracts?

According to Tobias Federico, head of the energy consulting agency Energy Brainpool, this is mainly due to Germany's unfavorable negotiating position: "The prices being paid on the short-term spot markets are crazy, so we can currently cover our needs.

For more favorable conditions, however, we would need long-term supply contracts.” However, most of the global contingents have already been sold, and the construction of new plants will take years.

"Accordingly, it is possible that the German delegations in Qatar, North Africa and Canada were presented with contracts with conditions that were too high." It could therefore make sense to wait and see if world market prices fall.

But doubts on the supplier side are also a possible reason for the failure of the negotiations: "In Germany, it is not the state that makes contracts, but companies.

And they are currently running into major liquidity problems, as the example of Uniper shows.” To put it simply: “I wouldn’t be surprised if foreign suppliers didn’t want to sell gas to German companies via long-term contracts because they didn’t know whether they would resell it when prices fell can.” Because in the event of insolvency of the companies, there is a risk of payment defaults.

"That's probably why the federal government wants to provide Uniper with as much equity as possible through the mandatory convertible bonds," says Federico.

But why did Italy manage to strike a deal with Qatar?

“The Italian energy companies have two advantages: First, they are partly state-owned, which makes them more trustworthy for contractors.

On the other hand, they were not as dependent on Russian gas as Uniper, for example.

As a result, they have to replace fewer items and are financially more stable.”

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Where will the gas come from in the future?

EWI researcher Çam believes that gas prices could return to normal in the future: “International LNG demand is huge and growing.

The Asian countries in particular have stocked up on contracts, some of which last for decades.” If there are severe winters in Asia, additional purchases have to be made, which drives up the prices for the freely available LNG.

If Europe stops getting gas from Russia, new sources will have to be found.

"It is not possible to completely replace Russian gas with pipelines, for example from Norway," says Eren Çam.

A part would have to be covered by LNG: “We see the greatest potential, both for gas production and the construction of LNG terminals, in the USA.

In the future, they could handle more than a third of European gas imports and thus become the most important supplier,” explains EWI researcher Çam.

The further expansion – and thus also the price – depend on whether Russia offers more gas.

“If Russia continues to deliver gas to Europe on a small scale, according to our simulations, the USA will add between 924 and 1188 terawatt hours of annual liquefaction capacity by 2030.

If Russia stopped delivering, it would be up to 1518 terawatt hours.” For comparison: Germany consumes around 1000 terawatt hours of gas in normal years.

How expensive will gas be in the future?

The current discussions about high gas prices also raise the question of costs: "Even without Russian supplies and with increasing demand from Asia, Europe can depress gas prices in the long term through falling demand," explains Eren Çam.

To do this, European gas consumption would have to drop by up to 36 percent – ​​that corresponds to around 1,600 terawatt hours.

This can be achieved primarily through increases in efficiency and the use of heat pumps.

"The increased production of biogas is also important for this: It is currently around 33 terawatt hours per year - a tenfold increase by 2030 would be necessary."

If demand were to be reduced in this way, Çam expects gas prices to ease significantly: "In this scenario, we could see a level of between 1.8 and 2.2 cents per kilowatt hour for Northwest Europe in 2030 - roughly the same as in 2018," says the energy expert.

If demand remains high and there is no Russian gas, it could remain expensive in 2030 at around 5.9 cents.

If Russia continues to supply gas on a reduced scale until 2030 – and Europe consumes at the same level as before – the EWI analyzes show a gas price of around 2.8 cents in 2030.

Source: merkur

All news articles on 2022-09-23

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