Market price fall in natural gas won't reach Estonian consumer yet

Margus Kaasik.
Margus Kaasik. Source: ERR

While the price of natural gas on the Netherlands-based Title Transfer Facility (TTF) natural gas market fell to its lowest level in many months, at €80 per MWh Tuesday, this reduction will not be passed on to consumers in Estonia in January.

Lower prices may follow in February, though one factor in the fall in price – lower demand than anticipated due to milder temperatures – brings with it the knowledge that a feared shortage of natural gas in Europe this winter is not likely to come to pass.

As things stand, in January, natural gas prices will remain unchanged on December's figure of €1.75 per cubic meter, with the price for February to be determined this week.

Margus Kaasik, board chair at market leader Eesti Gaas, said the reason the fall in TTF price has not been immediately transferred to January's natural gas price to consumer is that the company makes its purchases based on the month-ahead index

Appearing on Vikkeraadio year-end show  "Lõpp hea, kõik hea" ("All's well that ends well"), Kaasik said: "Currently, our plan is that we would like to set lower prices from February."

"We mostly buy gas using the month ahead index, which has been more or less the same in December and January, perhaps even a a little higher in January than in December. The drop reached the spot market a few days ago, and the monthly index will reach February [Eesti Gaas prices]."

Kaasik added that in the first half of December, TTF prices were much higher, in the €130-€140 per MWh range, so the lower TTF price announced today cannot completely cancel this effect.

As for factors behind the TTF fall, Kaasik said these included expectations of a gas deficit not materializing – as the high price has reduced gas consumption even more than forecast, along with milder winter temperatures forecast for much of Europe.

The situation was highlighted by the fact that over the Christmas break, more natural gas was accumulated than taken out, which is an unusual state of affairs for late December, Kaasik added.

It also demonstrates that the price will go down further, even as it remains, even at below €100 per MWh, an abnormal level.

Any fears that gas reserves will not be enough this winter have been alleviated, on the other hand.

This may even help next winter too – if storage capacity is already half full at the end of this winter, if the mild temperatures prevail.
As for when the price fall will hit Estonia, Kaasik pointed to August and September, when the trend was in the opposite direction, ie. rising, but this did not hit consumers till a month later, and this is an issue with the month-ahead forecasting principle in general.

"We have observed for a long time that some months it is one way, and in some months, the other way," he went on.

As for reserves, with LNG, one of the main sources of natural gas given that Russian imports are now off the table, pruchases also use the month ahead rate, at least with Eesti Gaas, at the time the product arrives.

There are also no significant price risks for Eesti Gaas, at present, as a result of being indexed to market price, while storing up gas for the coming months is accompanied by hedging gransactions which will hep this market price be maintained – without doing so, the company would be taking very big risks, Kaasik said.

Natural gas prices on the TFF rose to over €300 per MWh at the end of summer and in the wake of Russia's war on Ukraine, then started to fall through autumn, though still stood at €149 per MWh as recently as December 7.

It then continued to fall to the level announced Tuesday morning, of €80 per MWh.

This is also a significant level in that, below a price of €80 per MWh, state support measures do not apply.

Since the start of heating system in October, the state will compensate up to 80 percent of gas bills where prices exceed the €80 per MWh mark, with caps on consumption based on the average household.

This measure will remain in place through to the end of March and, since the natural gas price in January will not fall, will apply to gas bills next month.


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Andrew Whyte, Karin Koppel

Source: 'Lõpp hea, kõik hea', interviewers Mirko Ojakivi and Ode-Maria Punamäe.

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: