Why the price of gas is so low: when bills go down

The price of gas drops again and reaches levels not seen for more than a year, well before the Russian invasion of Ukraine, boding well in view of the next bills. The TTF index of the Amsterdam stock exchange, the reference value for the formation of gas prices in Europe, has in fact reached 55.3 euros per megawatt hour. After months of extraordinary increases, the price of gas has been falling for about a month now, since an agreement was reached between European countries for a ceiling on the price of gas. However, analysts agree that it was not price cap to positively influence the markets: the reasons are different, and there are also reasons to believe that the situation could change again for the worse.

The price of gas goes down again

The TTF index of the Amsterdam stock exchange reached 55.3 euros per megawatt hour. A similar value hasn’t been seen since September 2021, well before February 24, the day Russia invaded Ukraine starting the war and the resulting extraordinary increases in gas prices, among other things.

The price of the TTF index on the Amsterdam Stock Exchange between 2021 and 2023-2

On February 23, the day before the Russian invasion of Ukraine, the price of the monthly TTF index of the Amsterdam Stock Exchange stood at 88 euros per megawatt hour. From then on there were record increases, up to exceeding 345 euros on 26 August and, in general, with the price of the TTF always above 100 euros, now identified as the “psychological threshold”.

The celebrated price cap it doesn’t lower your bills

After the agreement on price cap in mid-December the price trend was downwards, to then drop below the threshold of 100 euros in the last days of 2022. In the first weeks of 2023, the price of gas remained between 70 and 64 euros per megawatt hour . However, the reason for the decline is not the gas price cap.

Because the price of gas goes down

After the agreement at European level on the price cap the price of gas on the Amsterdam stock exchange fell, starting the following day. But the reasons for the decrease in price are other and linked to the demand for gas on the markets. The months of October, November and December were characterized by extraordinarily mild temperatures, several degrees above average.

In fact, winter 2022-2023 has not yet happened, and the anomalous heat has kept the demand for gas low, with consumption considerably reduced. According to Snam data processed by Today, in the last three months of 2022, around 5.6 billion cubic meters of gas were saved in Italy compared to the same period of 2021. In addition to domestic consumption, the lower demand from industry also played a part.

The lower demand has allowed the stocks to remain half full. Italy has recently fallen below 80 percent, while the European average is 81.7 percent. Usually, according to Agsi data processed by Today in this period of the year the stocks are below the current levels due to the winter temperatures: for example, in the same days of 2022 the stock level in Italy was 59 per cent, about 20 per cent less than the level current. By now there is great optimism in Europe on the ability of the Member States to be able to get through the winter without problems.

How much gas do we have for the winter

In addition to the low demand for gas influenced by the high temperatures, gas abounds on the European continent also due to the arrival of ships loaded with LNG, the liquefied natural gas, from China. Indeed, Chinese LNG exporters are preferring the European market due to full inventories in China and the resulting low prices.

What’s more, renewables are also helping to reduce the use of gas in electricity in Europe, with Germany producing an unprecedented amount of wind power on Saturday, while Britain also hit a record last week.

What to expect for your bills: when they go down

If the winter seems safe, the worries shift to the spring of 2023, when the European countries will have to fill up the stocks again in view of the next winter. 2023 could be the first year with Russian gas almost completely absent from the gas import portfolio in Europe and the LNG will play a leading role in replacing missing Russian supplies.

Russia brings gas back to Europe: Putin bets on it

However, the potential recovery of the Chinese economy caused by the abandonment of the zero covid policy could divert LNG to China at the very moment when it is needed most in Europe. Plus, soon Italy and Europe will experience truly winter temperatures for the second time since the end of summer, after the cold spell in mid-December. In fact, temperatures will reach even 4 degrees below the seasonal average. As a result, gas consumption is likely to accelerate, emptying storage more quickly

The cold wave in Italy and Europe increases gas consumption

As a result, the scarce availability of gas could increase fears of rationing and blackouts, driving up the gas price trend on the market. In the short term, however, the positive trend in prices seen so far bodes well for bills.

When will we pay less the gas bill

The price formation mechanism is in fact based on the average quotation for the month, and considering the trend in the first half of January, it is reasonable to expect a decrease in the price of gas bills, starting from the next bill: the date to keep in mind he eye to find out the amount of the January 2023 bill is the second working day of the following month, i.e. Thursday 2 February 2023.

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Why the price of gas is so low: when bills go down


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