Even in a worst-case scenario, where Russian supplies dry up, natural gas prices are unlikely to hit highs seen last summer, according to Moody’s latest European Energy Monitor.
It’s a bold prediction following two volatile years. The credit ratings agency relies on figures showing that, at the end of June, European gas stocks were 21 billion cubic metres higher than 12 months ago, offsetting the shortfall in Russian supplies.
Increased shipments of liquefied natural gas (LNG), restrained consumption and last winter’s mild weather boosted stocks, leaving Europe in a reasonably energy-secure position.
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In June, gas sold in Europe for about €35 for the quantity needed to generate one megawatt hour (MW/h) of electricity, 90 per cent off the peaks hit last August. This will increase to €50 MW/h in winter, low by recent standards but double the average paid over the last decade. Nevertheless, Moody’s warns that the supply-demand balance is tight. “Any supply shock or material drop in demand is likely to be reflected in rapid price swings,” it cautions.
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Moody’s assumes that LNG imports will match last year’s, (they are slightly up) while homes and businesses will continue to restrain energy consumption. The weather could cause a 10 per cent swing in demand either way. If Russia cuts off the remaining flow of supplies through Ukraine, this will spark a rise in prices “although they would be unlikely to hit the highs seen last summer”, the agency maintains.
Price shocks
In the short term, Irish suppliers have already bought gas for next winter, mostly at high prices, so any relief on homes’ and businesses’ bills is unlikely. One small plus is that consumers are insured against severe price shocks, which cannot be ruled out.
For the longer term, the Moody’s report makes Europe’s increased reliance on LNG and storage clear. Many in the energy industry warn that the Republic needs both, but it has facilities for neither. Minister for the Environment Eamon Ryan has postponed any decision on both pending his department’s latest energy security review. With an election looming next year, it is unlikely that he will risk committing to anything on this front.
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