The sharp increase in gas prices in Europe has been driven by a combination of a strong recovery in demand and tighter-than-expected supply, as well as various weather-related factors. These include a particularly cold and long heating season in Europe last winter, and lower-than-usual wind power availability in recent weeks.
European prices also reflect broader dynamics in the global gas market. There were severe cold waves in East Asia and North America in the first quarter of 2021. They were followed by heat waves in Asia and droughts in several regions, including Brazil. All of these developments added to the upward trend in gas demand. In Asia, gas demand has remained strong throughout the year, mainly driven by China, but also Japan and Korea. On the supply side, worldwide liquefied natural gas (LNG) production has been lower than expected due to a series of unplanned outages and delays around the world and delayed maintenance from 2020. .
“Recent increases in global natural gas prices are the result of multiple factors, and it is inaccurate and misleading to attribute responsibility to the clean energy transition gate,” said IEA Executive Director Fatih Birol.
Going forward, the European gas market could well face further stress tests due to unplanned outages and severe cold snaps, especially if they occur in late winter. Gas storage levels in Europe are well below their five-year average, but not far below their previous five-year lows, which were reached in 2017.
According to available information, Russia is fulfilling its long-term contracts with its European counterparts, but its exports to Europe are below their 2019 level. The IEA believes that Russia could do more to increase gas availability in Europe and ensure storage is filled to proper levels in preparation for the upcoming winter heating season. This is also an opportunity for Russia to highlight its credentials as a reliable supplier to the European market.
Electricity prices in Europe have risen to their highest levels in more than a decade in recent weeks, topping 100 euros per megawatt-hour in many markets. In Germany and Spain, for example, prices in September have been around three to four times the averages seen in 2019 and 2020. This increase has been driven by rising gas, coal and carbon prices in Europe. The sharp rise in gas prices prompted electricity providers in a number of European markets to switch from gas to coal for power generation, a trend that would have been more pronounced had it not been for the rise in the price of carbon emission rights in the market. The European market.
“The current situation is a reminder to governments, especially as we seek to accelerate clean energy transitions, of the importance of a secure and affordable energy supply, particularly for the most vulnerable people in our societies,” said Dr Birol. . “Well-managed clean energy transitions are a solution to the problems we are seeing in the gas and electricity markets today, not the cause of them.”
The links between the electricity and gas markets are not going away any time soon. Gas remains an important tool for balancing electricity markets in many regions today. As clean energy transitions move toward a path to net-zero emissions, global demand for gas will begin to decline, but it will remain an important component of electricity security. This is especially the case in countries with large seasonal variations in electricity demand.