Gas cheapest since Russia invaded Ukraine, price back to Dec 2021 level

It was all doom and gloom for many who feared unbearable hike in gas prices and were advocating to appease Russian President Vladimir Putin just a few months back. The European giants France and especially Germany were reluctant to supply modern NATO weapons to Ukraine so that Moscow didn’t get angry.

But things are ranging rapidly as gas has never been so cheaper before since the Russian invasion of Ukraine.

From Patriot defence system to infantry fighting vehicles are becoming part of the Ukraine’s arsenal as France, which although had supplied Caesar – one of best howitzer artillery pieces in the world – decided to go ahead with providing armoured fighting vehicles.

Later, Germany would provide Marder Infantry Fighting Vehicles after Biden and Chancellor Olaf Scholz had a telephone call. Berlin would also supply a Patriot air defence battery.

And the US, which previously wasn’t ready to provide such items, too, in the latest $2.8 billion package has included 50 Bradley Fighting Vehicles.

What is really going on?

May be this trend is linked to the gas prices. Yes! Natural gas prices in Europe and the United States have tumbled to levels last seen before Russia sparked a global energy crisis by invading Ukraine.

In the United States, the cost of wholesale gas flowing through the Henry Hub pipeline — which serves as the country’s price benchmark — has dropped 50 percent to $3.68 per million British thermal units (Mbtu) since late November, back to around levels last seen in December 2021, reported CNN.

Efforts by European households and businesses to use less gas — encouraged by the voluntary 15 percent reduction target set by the EU — have helped.

Wholesale European gas prices, as measured by the benchmark Dutch futures contract, have dropped almost 48 percent since mid-December to trade at €71 ($74) per megawatt hour on Friday — roughly where they stood on February 15 last year, a little over a week before Moscow’s unprovoked assault on its neighbor.

Prices are now nearly 80 percent below their all-time August high of €346 ($364) per megawatt hour, says the CNN.

According to Gas Infrastructure Europe, the continent’s storage facilities are currently 83% full. That’s well above the 69 percent the EU averaged at this point in the five years to 2021.

Europe can also thank a record-breaking spell of warm weather, as well as its own barnstorming effort last summer to fill gas storage, despite a slump in imports from Russia, its biggest supplier before the war.

“There’s no panic anymore,” Henning Gloystein, director of energy, climate and resources at Eurasia Group, said, referring to fears swirling last year that Europe could be forced to ration gas over the winter.

It’s encouraging news for the millions of households and businesses across the continent who have struggled to pay their soaring energy bills. But they shouldn’t expect immediate relief, analysts says.

Falling energy prices have helped bring down inflation. Across the 19 countries that share the euro currency, consumer price inflation dropped to 9.2 percent in December from 10.1 percent the month before.

Europe has rapidly learned to live without Russian gas after Moscow slashed its pipeline exports last year. The bloc has boosted imports from Norway and snapped up supplies of liquefied natural gas — a chilled, liquid form of gas that can be transported via sea tankers — mostly from the United States and Qatar.

The continent has also raced to build the facilities needed to receive LNG via ships and convert it into gas that can be transported through pipelines. Germany, the bloc’s biggest consumer of gas, recently opened two regasification terminals, and plans to bring another two online in the coming days, Gloystein said.

It’s not over yet

Still, as the continent looks to fill its stores ahead of next winter with very little Russian gas, problems could arise. According to Gloystein, the task is “going to cost a lot of money” given, in part, how vulnerable the bloc is to price rises in a tight LNG market. A pipeline outage in Norway, or a drop in US exports caused by extreme weather, could feasibly trigger a price spike.

Despite their recent steep decline, gas prices in Europe are still more than four times higher compared to the average over the past decade, Philip Lausberg, policy analyst at the European Policy Centre, told CNN.

Wholesale prices were already shooting up in the months before the war as economies reopened from pandemic lockdowns. Then, a surge in prices following Moscow’s invasion sent consumer bills soaring further and forced governments to stump up huge subsidies.

According to an analysis by Bruegel, a Brussels-based think tank, European governments, including the United Kingdom, committed around €705 billion ($739 billion) between September 2021 and last November to help shield consumers from painful rises to their bills.

UK household bills could start to fall from July, if market prices fall below the government’s annual £3,000 ($3,573) cap. The country’s businesses could feel the impact of lower wholesale prices sooner, when the government withdraws its support in April.

“As energy suppliers buy their gas and electricity in advance to fix some of their costs, wholesale price decreases are not immediately passed through to consumers,” Lausberg said.

“If the wholesale price remains low, consumers could profit from cheaper energy bills in a few months,” he added.

Moreover, some power companies will need to pass on the costs of the new LNG infrastructure, Gloystein said.

“Everything put together is a pretty expensive cocktail,” he said.

That will keep Europe at a competitive disadvantage to the United States, where gas prices are about five times lower.


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