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Gas prices likely to continue falling until end of winter

Gas supplies in Europe are currently abundant, meaning prices are falling. While this trend will begin to reach Estonian consumers, it will take a month to do so and gas will still cost slightly more than in Central Europe.

As this winter has been rather mild and industrial production low, there is currently a shortage of gas in Europe. This means gas prices are likely to continue to fall until spring and European storage facilities will be more than half full by the end of winter, Kalvi Nõu, portfolio manager for energy trading at Alexela, told ERR.

"Then, of course, this little rally will start or gas will start to be stored again for the new winter," Nõu said.

For the time being, the price on Europe's central Dutch TTF gas exchange is still falling gradually.

"The decreases and also the increases [there] actually reach [Estonian ] customers with a one month delay. If it can already be seen that the TTF price is going to drop significantly this month compared to last month, then it is safe to assume that the price for the customer will also drop from Estonian gas traders next month."

However, as Estonia is rather on Europe's periphery, gas arrives here at a slightly higher price.

"While the price of gas is whatever it is in the Netherlands, it arrives in Estonia at an average of €5/MWh more expensive," Nõu said.

While not the case in Estonia, elsewhere in Europe, gas is used to generate quite a lot of electricity. This means that the fall in gas prices has also helped to bring electricity prices down slightly.

"If we talk about a year ago, for example, the fixed-price packages that were offered in the Baltic countries were at around 15 cents/kWh, while today there are already 11-12 cents/kWh packages on the market," Nõu said.

However, Estonia still relies on oil shale to produce electricity, which is very expensive due to environmental surcharges. Elsewhere in Europe, too, renewable electricity and electricity produced by gas plants is not enough to cover energy needs during spells of cold weather.

"If it still gets really cold outside, like we saw at the beginning of January, power plants will still come on the market, which is even more expensive than gas plants, and then we could see prices that are several times higher," said Nõu.

The rationale behind building gas power plants in Estonia very much depends on input costs.

"If we take the current input costs – gas costs around €30/MWh, the CO2 quota currently costs €60/tonne – the cost price of producing gas for a gas-fired power plant will still be in the region of €100/MWh," Nõu said.

"This is not particularly cheap. There are some hours in the year when a gas power plant could enter the market. For those few hours, it is not recommended to build a gas-fired power plant per se, as they may not be enough to get a business plan together."

As input prices have also been quite volatile in recent years, potential investors have no certainty that the construction of a gas-fired power plant will pay off, Nõu added.


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Editor: Michael Cole

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