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EU Commission confirms improving market fundamentals in gas and electricity markets

EU gas and electricity markets were marked by a fall in wholesale gas and electricity prices in the first quarter of 2023, after the all-time highs registered during 2022, according to the Commission’s latest quarterly reports on the gas and electricity markets.

In its analysis of the first quarter of 2023, the Commission noted the improved market fundamentals that supported the continued downward trend in gas prices, settling at levels at the end of March which were around 75 per cent lower than in the previous quarter, but still high in historical terms. Gas price markets indicators, such as spreads between spot prices and forward contracts and price premiums on European trading hubs, started to narrow and displayed restored price convergences on the main EU gas hubs, as last year’s comprehensive set of EU initiatives to address the energy crisis resulted in tangible improvements. In particular, the record high gas storage levels, significant reductions in European gas demand, robust imports of LNG and a mild winter helped Europe to diversify away from Russian gas imports.

According to the gas market report, wholesale gas prices continued their downward trend from the all-time high of 320 euros/megawatt-hour (MWh) recorded on 26 August 2022. The quarterly average spot price for January to March was 53 euros/MWh, representing a 44 per cent decrease from the previous quarter’s average and a 45 per cent decrease year-on-year.

In parallel with this price decline, EU gas consumption and imports dropped significantly. Gas consumption fell by 13 per cent ­- year-on-year, well below the five-year average – even if there was a rebound of 19 per cent after a decline (-21 per cent) to very low consumption in the previous quarter.

The share of Russian pipeline gas in total EU gas imports during the quarter further decreased to 8 per cent. Russia’s share of total gas imports in the EU (pipeline gas and LNG) dropped to 14 per cent from 15 per cent in the previous quarter and from 42 per cent in the same period last year. Norway remained the largest pipeline gas exporter to the EU (with 53 per cent of the total, 21.7 billion cubic metres, bcm), followed by North-Africa (18 per cent, 7.3 bcm) and Russia (12 per cent, 5 bcm).

LNG accounted for 42 per cent of the EU gas imports during the first quarter of 2023, a significant increase from the 33 per cent a year earlier. The US remained the EU’s biggest LNG supplier with a 41.5 per cent share, followed by Russia (19 per cent) and Qatar (12 per cent). The EU remained the number one LNG importer in the world with 31.2 bcm or 22 per cent of global LNG imports, followed by Japan and China.

On the other hand, the electricity market report underlined that the first quarter of 2023 was marked by improved market fundamentals that supported a fall in wholesale electricity prices, after the highs of the third and fourth quarter of 2022. The European Power Benchmark averaged 122 euros/MWh in the first 3 months of 2023– 40 per cent lower than in the same period twelve months earlier. The largest year-on-year price falls in Member States were registered, among others, also in Croatia (-43 per cent).

EU electricity consumption in the first quarter of 2023 fell 6 per cent compared with last year’s levels. At the same time, the share of electricity generated by renewables increased to 41 per cent in the first quarter of 2023 (up from 36 per cent in the first quarter of the previous year), while the share of fossil fuels-fired electricity fell to 35 per cent (down from 39 per cent).

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