“Explosion” of gas prices

06. July 2021
-IAM, News

Hugues Chevalier, Economist

During the past weeks, the price of gas has risen sharply  around the world and more particularly in Europe, which affects cost production for manufacturers. The price of oil has recovered well in the last months to nearly $ 74 the barrel, but the magnitude of its rise is much smaller. But what is happening in the gas market is different. Last week, prices exceeded 30 euros per mWh on the benchmark wholesale market in the Netherlands, the highest since 2008. The soaring prices are pushing up production costs, especially in the agri-food sector, a large consumer of gas. This increase is due to several factors. First, the winter of 2021 was cold and above all longer than average so that demand was nearly 15% higher in the first five months of the year compared to 2020. Inventories, which were put with contribution last winter, must now be replenished which is driving current demand. In addition, Chinese demand continues to grow (China has become the world’s largest importer of gas) which is also pushing prices up. On the production side, Norway has ceased production of liquefied gas at its LNG unit north of the Arctic Circle following a fire. Finally, Russia, which provides 40% of European imports, limits, for the moment, its exports via gas pipelines which pass through Ukraine to arrive in “force” with the opening of the controversial Nord Stream 2 gas pipeline at the end. of this year. Maintaining gas prices at these levels is obviously not extrapolated in the medium term and will depend on the level of consumption next winter and the date of the commissioning of the new gas pipeline in the Baltic.