Analysis Energy
Gas drops in price, electricity at highest point of the year
The gas price has clearly dropped this week. Especially the news that a gas deal with Azerbaijan is close is causing lower prices. Meanwhile, the electricity price has risen to the highest point of the year.
The price of gas has taken a clear step down this week. Especially reports that a deal with Azerbaijan is approaching are putting pressure on the gas price. Meanwhile, electricity is quite expensive, as almost half of all electricity is generated with gas.
The gas price has taken a clear step down. On Tuesday, October 29, gas was traded for €43.20 per megawatt-hour. After that, the price decreased significantly. On Friday, November 1, gas was traded for €39.18. On Monday, November 4, the price corrected back to a level of €39.92.
The high price occurred after the Norwegian state gas company Equinor reduced production at one of its Sleipner B platforms following a fire alarm. This had a significant impact on the price development, as Norway supplies 30% of the gas to the European Union. Due to concerns about weaker supply security, the gas price increased significantly. This shows that the gas market is still characterized by a nervous undertone. According to analysts, there is a sentiment that Europe has mainly been lucky in the last two years with mild winters. The last two winters were milder than usual. If the upcoming winter turns out to be harsher, the demand for gas will increase significantly, making it more difficult to replenish reserves.
Confidence in supply is increasing
The reason the price took a step down this week is mainly due to reports that the European Union is getting closer to a major gas deal with Azerbaijan. This is significant because in 2025, the last European gas contracts will expire. This means that Russia will no longer have obligations to supply the last bit of gas that the EU requests. Azerbaijan could cover these volumes and possibly even deliver a larger part of the Russian gas that is currently missing. According to investment bank Goldman Sachs, the deal could bring the European gas price back to a level of €25 per megawatt-hour.
However, the full reserves still provide stability. The filling rate is still around 95% and has only decreased by 0.1% since reaching its highest point in October. Because the autumn has been relatively mild so far, the gas reserves remain fairly stable. The filling rate is slightly lower than average, but that is not unusual in itself.
In addition, the LNG price has taken a step down. On Tuesday, October 29, gas was traded for €13.69 per MMBtu. On Monday, November 1, the price dropped to €13.48. The effects of this are somewhat ambiguous. The level remains high, limiting the downward effect on the gas market. However, the effect is not negligible. The fact that the market is not trending upwards does create room for a decline.
Electricity price takes a significant step up
While the gas price is dropping, the electricity price was high this week. The price only reached below €100 for one day. On Tuesday, October 29, the price of electricity reached the highest level of the year, at €134.20. Only on Sunday, November 3, did the price drop below €100, with a price of €92.42.
Similar to last week, low production from renewable sources is causing higher electricity prices. The total production from solar and wind energy was 23.2%. The total production from wind energy was 14.6%. Meanwhile, 8.6% of the electricity was generated by solar collectors.
Due to the low production from renewable sources, the power plants running on fossil fuels had to work overtime. In total, almost half of all electricity was generated by gas. The relatively high electricity price significantly drives up the electricity price. Coal-fired power plants were responsible for 11.8% of the electricity. Finally, an additional 8% of the electricity was generated from biomass.
