Gas prices fall as EU mulls controls and windfall taxes

'We are seeing a major energy crisis — but I still don’t see this being translated into facts in terms of energy demand reduction in our daily lives.'

Wholesale prices of European gas fell by up to 7% on Monday as markets waited for details from the European Commission of its energy crisis package that may include price caps and windfall taxes on energy producers.

Prices for the key fuel that is used to produce large amounts of electricity in Ireland and the rest of Europe nonetheless remain at over six times above levels of a year ago, according to futures markets. 

The European Commission will propose targets to cut power demand, including a mandatory goal on lowering demand during selected peak hours, according to a draft regulation, Bloomberg News reported.

It will also aim to cap excessive revenues of companies producing power from sources other than gas, through a limit on the price of electricity generated from technologies such as renewables, lignite or nuclear energy. All changes need to be signed off by member states.

"The grim reality of Europe’s cost-of-living crisis is beginning to stir governments into action," said Neil Shearing, chief economist at Capital Economics, in a research note. 

"In Germany, the government has announced a support package that freezes energy prices for households and businesses. The new UK government has done something similar," he said. 

The price of gas for delivery in October fell 7% on Monday to €192.25 per megawatt per hour. 

Gas for delivery in December also fell, by 6%, to almost €205 per megawatt, down from a record price of €350 on August 24, but still over six times above the contract price of 12 month ago.                       

“We are seeing a major energy crisis — but I still don’t see this being translated into facts in terms of energy demand reduction in our daily lives,” said Anne-Sophie Corbeau, a research scholar at Columbia University, who previously worked for BP. 

We have a gas and power crisis. So it is important to reduce gas and power demand.” 

Gas accounts for about 20% of EU generation, and gas-fired generation has been increasing year-on-year over the first eight months of 2022 rather than decreasing, due to lower hydro and nuclear power, she said.

European storage sites are about 84% full, slightly above five-year average, according to Gas Infrastructure Europe. 

The continent is also adding more facilities to receive liquefied natural gas, with the latest terminal opened in the Netherlands last week. 

European LNG imports are expected to be up 16% versus last winter, as new projects in the US and Mozambique start up, Goldman Sachs said. Still, a cold winter in Asia and an economic rebound in China could boost that region’s competition for cargoes.

There’s still major “uncertainty on the price of gas, and beyond the price of gas, the availability of gas,” Gilles Moec, chief economist at Aaxa Investment Managers, said in a Bloomberg TV interview. 

The market is still awaiting details on the EU’s further moves, and if there is a need for actual gas and power rationing, he said.