Thomas Lyons 
The European wholesale gas market has seen a significant drop in prices in recent weeks, pointing towards potential cuts for utility bills for households and businesses. The key benchmark prices for gas used to power large amounts of electricity on the all-Ireland grid have seen a massive slide this week, with the price of gas for delivery in June falling below €25 per megawatt hour. This price is down from €30 in the past week and marks the longest run of weekly declines since 2007, with prices now having declined for eight consecutive weeks. This year’s slump is more than 66%. If these price cuts are passed on, it could mean significant savings for consumers.
The spike in prices last summer, with gas prices reaching as high as €306 per megawatt hour, was due to concerns that Europe would run out of its key gas supplies that power and heat homes and run industries, following the ending of supplies from Russia. However, Europe bolstered its gas storage reserves over the winter by record levels, helped by imports of large amounts of liquified natural gas, or LNG supplies from the US. Despite this, demand has been slow to return, and prices have continued to tumble in recent weeks as the eurozone-wide economy showed few signs of a meaningful recovery.
Germany, Europe’s top economy, has suffered its first recession since the start of the pandemic, extinguishing hopes that it could escape such a fate after the war in Ukraine sent energy prices soaring. Figures posted this week showed that first-quarter output shrank 0.3% from the previous three months following a 0.5% drop between October and December, according to the German statistics office. The recession in Germany has added to the concerns around the European wholesale gas market and the potential for a fragile supply situation.
Despite the recent drop in prices, the price of European wholesale gas for delivery in December was still trading at a relatively elevated level of €44.85 in yesterday’s trade, according to futures markets. There are growing concerns that plentiful shipments of LNG supplies to Europe may come to an end this winter. The price of LNG gas futures in Asia was trading at the highest premium to European prices since the start of the year. While Europe averted a severe gas shortage last winter, the discount to Asia for its cargoes could worsen the region’s still-fragile supply situation in the wake of Russia’s invasion of Ukraine.
In conclusion, the European wholesale gas market has seen a significant drop in prices in recent weeks, offering potential cuts for utility bills for households and businesses. While the drop in prices is a positive for consumers, there are growing concerns that the plentiful shipments of LNG supplies to Europe may come to an end this winter, which could worsen the region’s still-fragile supply situation. The situation is one that will undoubtedly be watched closely by consumers and businesses alike.
