Many hours of sunshine conserve the gas reserves. For the first time this year, however, gas prices have risen again – Europe has to align itself with East Asia for the first time in a long time. Photo: Marcus Schlaf © marcus schlaf
Weak demand and good weather make new bargains possible for pellets, oil and the like. But in the case of gas, there has now been the first setback of the year – what consumers now need to know.
Munich – On the German energy markets, the year is one after the year's low. But now there have been the first setbacks: the exporters of oil and gas do not want to stand idly by and watch the falling prices. Here's what consumers need to know now:
Gas: Prices could also rise due to demand
The price of gas fell below 25 euros per megawatt hour last week, only 50 percent above pre-crisis levels – and below transport costs. According to experts, liquefied natural gas, so-called LNG, can hardly be brought to Europe profitably for less than 30 to 40 euros. Thomas Peiß, analyst at BayernLB, explains: "The low gas prices are an expression of the warm weather, but also of the weak economy, both in Germany and in China."
Until mid-May, gas in Europe cost over 30 euros, so tankers were sent. In the meantime, suppliers are apparently looking for other buyers: In the Japan-Korea region, gas costs more than 31 euros. On Monday, the European gas price rose by 25 percent to just under 29 euros, the first real increase this year. According to Ciaran Roe, chief LNG analyst at S&P Global, the price correction was necessary to make Europe more attractive again.
In the medium term, prices could also rise due to demand, says Thomas Peiß: "Our economists expect that the Chinese economy will not gain significant momentum until the second half of the year, which would increase demand." However, it is still uncertain whether this will drive world market prices for LNG: "The International Energy Agency assumes that China has contracted more gas through long-term contracts. Depending on how much the economy recovers, however, they still have to procure gas on the spot market – where Germany also buys."
Accordingly, gas prices for the current year depend entirely on the demand side: "This year we will hardly see any more LNG on the market, at the earliest from 2024," Peiß said. "The price of gas will rise at the latest when the winter gets cold." Gas-fired power plants are also short-term demanders: "If there is another extended drought in the summer, we could have problems with the coal and nuclear power plants again – this would mean that we would have to use more gas to generate electricity." The uncertainty is priced into the market: gas for 2024 costs around 44 euros today, as much as in December, which was seasonally expensive.
Electricity: Uncertainty surrounding French nuclear power plants
Low gas prices as well as many hours of wind and sunshine have pushed electricity prices for June down to 83 euros per megawatt hour. On Monday, there was still a short-term low of 73 euros. By comparison, at the end of April, the same delivery cost 101 euros. As with gas, however, the market has priced in enormous risk premiums for 2024: At 125 euros per megawatt hour, delivery for the whole year costs hardly less than for December.
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A major factor is the uncertainty surrounding the French nuclear power plants, which were considered traditional winter suppliers: "The French nuclear power plants are currently being repaired, but new damage is constantly occurring," explains Thomas Peiß. Last year, around half of the plants were not connected to the grid. The consequence: "Last year, we were not able to convert our electricity generation from gas to coal to the desired extent because we needed the gas-fired power plants for export," says Peiß. "If the French nuclear power plants were to fail, this would have a significant impact on prices – also in Germany."
The market-based CO₂ price has also become a risk, especially for coal-fired power plants: "Because we don't have enough storage facilities and grids to use green electricity base-load capable, fossil fuel power plants have to run, no matter how expensive the CO₂ is."
Tip for consumers
The electricity and gas markets continue to depend on each other – and are on a stable downward spiral. So far, there is nothing to be said against betting on further falling prices, they are reliably passed on to new customer tariffs. Cheap gas costs just nine cents gross per kilowatt hour, electricity 29.2 cents. But the situation is uncertain: gas is still trading below its logistics costs, and there are few hedging transactions for imports. As a result, rising demand (in China), drought and another failure of the French nuclear power plants could quickly make new customer tariffs for electricity and gas more expensive. Existing tariffs with fixed prices, on the other hand, are usually hedged at the wholesale market. Reputable providers often cost a little more because hedging transactions incur costs.
Oil: Volatile situation, but opportunities
Crude oil costs 76 dollars per barrel (159 liters), in the meantime it even fell close to its low for the year to 73 dollars. According to Commerzbank analyst Carsten Fritsch, there is no specific reason, but rather a mixture of cyclical demand concerns, abundant Russian exports and uncertainty ahead of last weekend's Opec+ meeting.
There is currently a conflict of interest: because Urals oil is currently traded at just under 60 dollars per barrel. If the price were to rise above $60, the G7 embargo would take effect. That would put Russia in trouble disembarking its oil. At the same time, Saudi Arabia wants a price above $80 to balance its budget. According to Commerzbank's chief commodity analyst Thu Lan Nguyen, it now comes down to this: Saudi Arabia has single-handedly decided to cut production for July, but could hardly expand it without losing market share. Due to the economic recovery in Asia, Nguyen therefore expects a moderate price increase to 90 dollars by the end of the year. However, if the global economy recovers, prices could rise much more drastically, as they did in 2021.
Tip for consumers
The situation on the oil market is volatile and offers opportunities, explains Oliver Klapschus of the comparison portal Heziöl24: "This summer, new price lows for heating oil could well be tested, in Bavaria even below 85 cents."
Pellets: rashes not expected
After their recent lows for the year, pellets have picked up again somewhat, to 382 euros yesterday. Oliver Klapschus is not worried about this: "The pellets have become a little more expensive, but you also have to see where we come from: In late summer 2022, the ton had cost 800 euros, at the end of April it was 316 euros." His prognosis: "It may still go up to 400 euros a tonne, but it can also become cheaper again in the course of the summer." Klapschus does not expect swings like 2022 this year.
