Panic in the gas market increases its price

by Dumitru Chisalita

Lack of gas supply in the market has created panic among suppliers who struggle to purchase gas for their own customer portfolio. Gas price on BRM’s spot market has reached huge values for March, up to RON 132.73/MWh. The same panic determined gas acquisitions for delivery in summer months at a price of RON 86.5/MWh. At the same time, the price of gas traded on BRM for H2/2021 is RON 90.89/MWh (compared to RON 52.89/MWh in 2020) and RON 95.1/MWh for Q4/2021 (compared to RON 62.66/MWh in 2020).

The long winter has caused the massive withdrawal of gas from the underground storage facilities, which in conjunction with lack of gas available for storage and especially lack of gas supply will bring high gas prices in the winter of 2021/2022.

6 months ago we warned on the impact on gas prices following the application of the GRP (Gas Release Program), a program through which ANRE intervened, changing the gas acquisition price on the wholesale market. 2 months ago we said that GRP would do more harm than GEO 114, imposed by the Government in 2019 (but in relation to which ANRE was no stranger). (Details here)

The application of the GRP on the gas market in Romania, by imposing a mechanism for setting the starting price of auctions for gas from domestic production purchased by suppliers, artificially generated significant price differences between neighboring markets.  Significant price differences, of approximately RON 10-15/MWh, between those practiced internationally – relative to CEGH Vienna exchange – and the domestic ones determined suppliers to focus on exporting Romanian gas or on swap operations. This situation could be the cause of the lack of gas quantities in the market that determined this significant price increase. 

According to an analysis by Marcel Bogdan, posted on his Facebook page, on gas imports and exports in Romania during 2019/2020, the following resulted:

• In 2020 there was an increase in gas exports by 1204,18% and a decrease in gas imports by 19.72%;

• In 2020 exported gas was cheaper than that imported by RON 5.39/MWh. Relative to 2019, when exported gas was cheaper than the imported one by RON 4.03/MWh, there was an increase in the difference by RON 1.36/MWh;

This trend makes gas prices at which gas will be sold to around 3,000,000 household consumers (consumers that remained with their suppliers at the time of full liberalization of the gas market) to grow, as of July 1, 2021, when they have another contract, which will be concluded automatically (without requiring the consumer’s signature), in absence of written notification from the consumer that it does not agree with this extension and signing a new contract with another supplier.

Given the price at which gas was traded on BRM in 2021 with delivery in H2 and Q4, the much lower gas quantities to be stored this year and the lack of long-term gas import contracts will lead to an important increase in gas prices at the final household consumer. In fact, in ANRE’s price comparator new offers have appeared lately with significantly higher prices.

Following AEI analysis, gas prices for the population as of July 1, 2021 could increase by up to 13%; this, after in H2/2020 some suppliers gained as a result of the GRP established by ANRE about EUR 70mln.

Conclusion of a take-or-pay import contract, for an average term, with baseload delivery, is one of the options for ensuring Romania’s energy security in the following winter and the conclusion as soon as possible by household consumers of a contract at the current prices could prevent the payment of higher prices in the summer of 2021.

Translation from Romanian by Romaniascout.