This week has seen the biggest drop in Natural Gas EU Dutch TTF prices since September 2021, nearly six months prior to the start of Russia’s invasion of Ukraine and the Kremlin’s full-scale energy war against Europe. Indeed, alongside ramped-up LNG imports and roll-out of renewables, the unprecedented warm temperatures are a key factor for this new price trend – presenting a major opportunity for Europe to gain a strategic upper hand in the ongoing energy crisis. Considering these key developments, we take a look at recent data on energy prices and storage levels across Europe and their implications on the shape of European energy markets going forward.
For the past five weeks, gas prices on the EU Dutch TTF have been progressively decreasing – dropping from around 149 euros/megawatt-hours (MWh) on 7 December to just below 55 euros on 17 January 2023; today (19 January), prices are oscillating at around 63 euros/MWh. Providing somewhat of a respite for policymakers and industry leaders, this has provided an unforeseen opportunity to maintain and increase the continent’s already high gas storage levels amid the official withdrawal season.
On 15 January, the EU’s gas reserves stood at 81.49 per cent full, according to data from GIE (Gas Infrastructure Europe). In comparison, during the same period last year (15 January 2022) only 46.29 per cent of the bloc’s storage facilities were filled. During this period last year, Poland had the second highest gas reserves (78.22 per cent, on 15 January 2022) in the EU and today, the country’s reserves continue to beat the EU average (95.48 per cent, on 15 January 2023). Croatia (91.31 per cent), Czech Republic (86.2 per cent) and Bulgaria (82.19) joined Poland in having reserves higher than the EU’s average this past Sunday.
The drop in natural gas prices has also had a domino effect on electricity prices across the continent. In December, the minimum day-ahead price of electricity stood at 96.35 euros/MWh with the maximum price standing at 294.81 euros/MWh. The average day-ahead price in Hungary was 260.78 euros/MWh, 173.55 in Poland, 265.72 in Austria, 246.56 in Bulgaria, 247.59 in Romania, 246.37 in Croatia, 263.05 in Estonia and 250.42 in Czechia, according to data from an international energy think-tank, Ember.
Whilst 294.81 euros/MWh is certainly not a low figure, it is nonetheless a major drop from the day-ahead prices that had peaked at 543.48 euros/MWh (max EU price) in August, oscillating at around 400 euros throughout the summer and early autumn. Indeed, the record drop in gas prices this month has led to a further dip in the day-ahead electricity prices.
CEE’s residential energy market in December 2022
Many governments across Europe, such as Hungary, have extended or continue to have in place subsidies on household and business energy bills. Indeed, lower prices on the global energy markets also mean lower government spending to cover the cost of the subsidies, helping to balance the expenditure books for many finance ministries in the region.
Looking at the EU’s residential energy market (end-user prices) in December, Central and Eastern Europe (CEE) is placed at the lower end of the price range, as often highlighted by CEE governments. In terms of electricity bills, Hungary and Croatia offered the most competitive rates in the EU, at 0.902 and 0.143 euros/kWh, respectively. Poland (0.187 euros/kWh) Romania (0.162 euros/kWh) and Bulgaria (0.152 euros/kWh) were also among the countries with the most competitive rates.
The end-user prices for natural gas drew a similar picture. With a rate of 0.248 euros/kWh, Hungary offered the lowest rate in December, followed by Croatia (0.523 euros/kWh), Slovakia (0.528 euros/kWh) and Poland (0.553 euros/kWh).
What’s next for the CEE region and Europe?
As noted by Eesti Energia, the Estonian energy company, even if the warm weather passes as we approach the coldest month of the year (February), energy prices are not expected to spike again due to the EU’s strong gas reserves. However, as persistently raised by numerous energy analyses and experts, ensuring price stability for next year’s next heating season is set to become worryingly difficult as Europe’s competitive edge is being significantly weakened against its competitors in Asia. In particular, the expected surge in energy demand by China, as it lifts its coronavirus restrictions, could be a major factor for potentially strained energy supply in the coming months.
Separately, as previously highlighted, the EU’s energy-crisis strategy lacks a strong policy toolbox for increasing energy efficiency and demand reduction, an issue which is further illustrated by Europe’s slow progress in introducing mandatory energy consumption measures on the domestic level – particularly visible in countries from the CEE region.