Analysis Energy
Gas price makes electricity price unstable
The price of gas has once again slightly increased this week. The level of over €40 per hour has been reached again. This is also noticeable on the electricity market. The prices on that market fluctuate quite significantly.
The price of gas has taken a small step up compared to last week. On Tuesday, October 8, gas was traded for €38.92 per megawatt-hour. On Monday, October 14, the price rose again to €40.15.
The gas market still focuses mostly on the geopolitical tensions in the Middle East. The situation in the Red Sea near Israel is particularly monitored. LNG ships from Qatar need to pass through this sea to reach Europe. Last year, sailing through the Red Sea was quite risky. Houthi rebels randomly attacked cargo ships in protest against Israel's actions in Gaza.
Since Israel's actions against Lebanon, rocket attacks by Houthi rebels on ships in the area have increased again. If the situation in the Red Sea significantly deteriorates, ships would have to detour via the Cape of Good Hope. This would add an extra ten to fifteen days, causing Europe to pay a considerable premium for Qatari LNG. Additionally, low water levels in the Suez Canal complicate the supply to Europe. This could lead to a reduction in the maximum number of ships allowed to pass through the canal.
LNG price remains stable
Meanwhile, the Asian LNG price remains relatively stable. On Tuesday, October 8, LNG was traded in Asia for $13.10 per MMBtu. On Friday, October 11, the price dropped by 2 cents to $13.08. The Asian LNG price rose significantly this summer due to the increased demand for gas to generate electricity. Various heatwaves led to a considerable rise in electricity demand for air conditioning. It is no longer as cold now, but the Asian market is starting to look towards winter. Whether the price will decrease in the coming months depends mainly on the temperature. If it gets significantly colder, the current price level may hold. Especially if Europe also experiences colder than usual temperatures, there could be significant competition between the continents.
Electricity quite dynamic
The electricity price was quite dynamic this week. On Monday, October 14, the electricity price reached the highest level in two months, at €117.05 per megawatt-hour. The day before, the price of electricity was the lowest in over a month, at only €32.94.
A key factor for the increased volatility in the electricity market is the higher gas price. The electricity price is almost constantly pulled up by the higher gas price since gas remains one of the most used sources to generate electricity. Roughly one-third of all electricity in the Netherlands is generated from gas.
Especially when little electricity is generated from renewable sources, the effect of the high gas price is noticeable. At times when a lot of gas is needed to meet the electricity demand, we now see the gas price recording higher peaks. After the beginning of January, there were no peaks above €100. Since August, the gas price has risen above that level several times.
That was precisely the story of this week. The share of solar and wind energy was clearly below half this week. Only 47.4% of all electricity was generated from the two sources and was almost costless. In total, 17.4% of all electricity was generated by solar panels. The percentage of wind energy reached 29.9%. In the summer, more than half of all energy was usually generated from renewable sources, and sometimes as much as 60% was generated from the two renewable sources.
