Natural Gas Prices Quarterly bulletin – Vol IV, 28.06.2018

Developed and edited by the Intelligent Energy Association – www. asociatiaenergiainteligenta.ro

• Editorial – The end of the cheap gas era

After the peak of gas prices reached in 2012, the price fell to a level similar to the ’90s. After 6 years of low gas prices, we will enter a new “era” of prices, significantly higher. This period was used in an intelligent manner by companies and countries, to streamline certain activities, reduce costs, initiate investments in infrastructure (which otherwise wouldn’t have met the conditions of feasibility), and which allowed repositioning in the market.  In fact, this period of cheap gas was used to prepare the following period, of expensive gas. Unfortunately, Romania did not take advantage of this period, hoping, like the cricket in the fable, that gas prices would remain forever low.

The lack of strategy, failure to apply the existing legislation on market liberalization and ensuring a fair price in the market etc. will find many gas consumers unprepared for the following period, when gas prices increase, and applying the populist measures from the past to solve the problems of gas consumers’ vulnerability will only accentuate the problems in the future. The draft amendment to the gas law, which is currently in Parliament, not only does it fail to come up with solutions to prepare Romania for this new “era” of gas, but it also contains articles that will lead to an escalation of prices, i.e. an increase in prices for end-consumers. We notice that The decision of today can ruin the joy of tomorrow. 

• History and trends of gas prices in Romania

The wholesale market. Analyzing the transactions carried out during January – December 2018, on platforms made available by the Romanian Commodities Exchange (BRM), we determined the average price weighted with the gas quantities purchased with delivery in the respective month, taking into account gas from domestic production traded on BRM. It can be noticed that starting with Q2 2018 there is an inflection of the trend of the weighted average price curve, which increased in Q2 2018 by 12.6% compared to Q2 2017 for gas from domestic production, expecting an increase by 15.6% in the price in Q4 2018, compared to Q4 2017.

Analyzing the minimum/maximum price limits of gas traded on the wholesale market through BRM’s trading platforms delivered in 2017 and those to be delivered until December 2018, we estimated an upward trend of the price of gas from current production, above the trend of 2017. The maximum price of gas traded in June 2018, with delivery in December 2018, is by 30% higher than the maximum price traded in the summer months with gas delivery in the winter 2017/2018, which shows that suppliers expect a significant increase in gas prices in winter months.

Given the obligation established by ANRE for gas storage, the increase in petroleum products prices and thus in import gas prices, Romanian practice to use gas from import as balancing gas in the cold season will bring significant price increases in the cold season of 2018/2019 vs. the cold season of 2017/2018. We can notice an upward trend of the gap between the minimum/maximum price of gas traded on BRM, which shows how far we are from a normal market and especially the need to apply the natural gas law, amended 2 years ago by GEO 64.

Retail market. Transactions through the exchange on the retail market are increasingly few. To be able to compare the prices of gas traded, as commodity, we determined for each consumer who performed transactions the related regulated tariffs and thus deducted the price of gas as commodity, prices valid from the trading month for one year. Average prices of transactions performed on the retail market during October 2017 – June 2018 were in continuous growth.

Household market. Gas price trends, for both gas from domestic production and imported gas to be necessary in the cold season, as well as the use of gas from the underground storage facilities will lead to an increase in the price of gas for population in the cold season by around 10%, based on BRM data. Based on the same transactions, carried out on BRM, the conclusion is that the increase in gas prices for population will be much higher in the northern part of the country, where the price could go up by around 13%.

• History and trends of gas prices globally

Analyzing the global trends of gas prices, we can see an upward trend of gas prices. CEGH Vienna Exchange, the European gas exchange the closest to Romania, recorded a slight increase in gas prices in Q4-18 compared to Q4-17 according to futures contracts, by around 10%. The experience of the past years allows the use of this price as a benchmark for the price of gas from the Russian Federation sold in Central and Eastern Europe.

Analyzing the gas price trend in the US in futures prices Q4-18 vs. the average price in Q4-17, we can notice a trend of significant increase in gas prices, which according to certain analyzes will be by 8%, but there are also analysts who show that it will increase by 40% in the following winter.

• Weather forecast

The next three months will bring warm temperatures, with values above the monthly climatic averages, in July and August, close to the norms in September, but also with significant rainfall deficits estimated (Source: National Meteorological Administration (NMA)).

Developed and edited by the Intelligent Energy Association, a nonprofit organization that aims to develop market models to ensure transparency, non-discrimination and competition, mechanisms and knowledge to ensure market functionality in conditions of increased energy security. All rights reserved to the Intelligent Energy Association

Translation from Romanian by Romaniascout.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net