Europe’s energy market intervention lowers wholesale gas costs

Europe’s energy market intervention lowers wholesale gas costs, Signs that Europe is poised to interfere directly in energy markets have caused a dramatic decline in the wholesale price of gas.

While attempts to fill gas storage tanks look to be ahead of schedule, the European Commission said it was working “flat out” on an emergency package and a longer-term “structural reform of the power market” to battle rising prices.

On Tuesday, the UK wholesale gas price for the coming day fell by over 20% to 447p per therm, while the price for the coming month fell by 25% to 473p per therm.

Even if they have come down from their near-record highs, energy costs are still 12 times what they were at the beginning of 2021, before the energy crisis began.

Europe’s energy crisis leaves it with little choice but to save consumers.

It came as Kwasi Kwarteng, the UK’s business secretary, reported success in reopening the country’s largest gas storage facility. Centrica, an energy company, is attempting to revive the Rough facility in the North Sea off the coast of east Yorkshire.

Kwarteng stated Tuesday night that the North Sea Transition Authority has given the project the go-ahead after months of preparation.

Because of concerns that Russia will cut gas supplies even further, European countries are scrambling to fill their gas storage facilities before winter. The average European gas storage facility is already nearing 80% capacity, well on its way to meeting the European Union’s goal that all member countries reach 80% capacity by November 1.

Germany is Europe’s largest gas consumer, but because it is making headway on its storage targets, the German economy minister, Robert Habeck, said he expected gas prices to decline shortly because the country would no longer have to pay the high asking costs to continue replenishing inventories.

According to reports, Habeck also informed his fellow European energy ministers that Germany is open to reconsidering a European price restriction on gas.

Before a meeting of EU energy ministers on September 9th, the European Commission is working on emergency ideas to cut the cost of homes during winter. There seems to be more of a long-term strategy for entering the industry in place.

It’s in the right spot. We’re in such a price rise that it’s opened up political space,” a European official told the Agence France-Presse news agency on condition of anonymity.

He stated, “We can expect a proposal by the beginning of next year and the European Commission will initiate an impact study in the autumn.”

On Monday, Ursula von der Leyen, president of the European Commission, announced that Brussels was planning an intervention to decouple electricity rates from the growing cost of gas. This is to ensure that electricity rates reflect the lower costs associated with renewable energy sources.

The pressure for the next UK prime leader to propose a similar package of steps to combat bills has been amplified by von der Leyen’s intervention. The energy industry’s next price cap was established last week by regulator Ofgem at £3,549. It will take effect in October.

Ofgem has opened a consultation on whether or not to unlink the wholesale cost of electricity from that of natural gas.

Analyst John Musk from RBC Europe stated, “It is evident, in our view, that current power rates of €700-800 per megawatt hour are unsustainable and providing windfalls for some generators.”

Given the importance of keeping investor trust, the question is how long it will take to enact any reform. While longer-term structural reforms are being considered and implemented, the current high electricity costs may lead to additional windfall taxes or voluntary contributions from generators across Europe.

Although the long-term view for gas supplies is bright, the short-term picture is still unclear. Starting on Wednesday, Gazprom will perform maintenance on the main Nord Stream 1 pipeline that delivers natural gas from Russia to Europe.

This shutdown comes after the Nord Stream pipeline had already been operating at a fraction of its regular capacity due to a 10-day maintenance outage in July. Concerns that Russia could completely cut off flows have arisen as a result of supply disruptions. This comes at a time when demand is expected to increase dramatically due to the upcoming winter season.

Engine, one of France’s main gas suppliers, announced on Tuesday that Gazprom would further reduce deliveries to the firm due to a disagreement over the interpretation of some contracts. Since the conflict in Ukraine broke out, Gazprom’s deliveries to Engie have dropped significantly.

Wien Energie, the primary power provider for the Austrian capital, has requested billions of euros in loans from the federal government to cover margin fees so it can continue trading on the European power-futures market.