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The price of gas falls to its lowest level since January and offers a balloon of oxygen to the electricity market | Economy

A methane tanker transports liquefied natural gas to Spain.
A methane tanker transports liquefied natural gas to Spain.

January 1 The first day of the year was also the last day in which Spanish wholesale consumers were able to buy natural gas at a lower price than today. The cost per megawatt hour (MWh) of this fuel has fallen this Monday to 55 euros in the Iberian Gas Market (Mibgas), 22% less than the day before and notably below the European average. With this decline, pre-war levels are clearly left behind. Also, and by far, the 221 euros that he came to mark on March 7. And it allows Spain to think of a period of greater calm —although always relative— in the always tense electricity market, which depends to a large extent on what happens in its gas counterpart. The experts, however, do not rule out new curves and potholes in the Spanish and European gas markets: everything remains, they stress, in the hands of Vladimir Putin.

Why this recent drop in the price of gas? As always when there is a significant movement in the market, the reasons are not one, but many: from the confinements decreed in various cities in China to curb the spread of covid-19 —which have reduced gas consumption in the Asian country and have redirected several methane tankers (those that transport gas) to Europe, putting downward pressure on prices—, until the general rise in temperatures, which has reduced consumption, passing through the greater wind and sun in recent days , which has reduced the need for gas to generate electricity.

“The market is reflecting the lower need for natural gas for heating,” notes Verónica Rivière, president of GasIndustrial, the association that brings together the largest consumers of this fuel. “Also, although everything still depends on Russia, the geopolitical issue seems somewhat calmer.”

This sharp drop in price has a direct impact on the electricity market, given the enormous interconnections between the two: combined cycle plants set the price, directly or indirectly, in a good number of time slots. According to Revuelta’s calculations, even on a day with very little wind or sun, with gas in the current environment of between 55 and 60 euros per MWh, electricity should not exceed 150 euros per MWh in the wholesale market. High prices, very high, historically speaking, but also much lower than the 280 euros on average in March, the last full month for which there is data.

The current price, however, is far from the levels that could be considered logical in a “normal” market situation. To put it in historical context, this Monday’s 55 euros are very similar to those touched by the Iberian market during the snowy and cold weather of Filomena, in January of last year, and which constituted —in its day— a peak since there are records.

“We have dropped below 100 because it can be seen that we are not even short, but we are not at levels of 20 either, which is where we should be heading. If the world market were well balanced, we should be moving in a range between 15 and 35 euros per MWh”, says Javier Revuelta, energy expert at Afry. “But the battle in recent months to get available methane tankers has led to prices being paid that have nothing to do with cost, but with what consumers are willing to pay to avoid a supply cut.”

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In the medium term, Riviére does not dare to claim victory -in fact, he foresees slight increases starting this Tuesday, when Easter is behind and business consumption returns to normal levels-, but he is confident that he will not see more the 221 euros per MWh reached in March. Regardless of the rhetoric, the pipes that transport natural gas from Russia to Europe continue to work at full capacity —”we are far from the Russian supply being interrupted,” summarizes Revuelta— and European reserves (and, very particularly, Spanish ones) are at better levels than could be expected a few weeks ago.

The expert from the specialized firm Afry also does not rule out a return of gas to triple-digit values, to which Europe had become accustomed in recent times. “The most probable thing is that we will return to high prices: the European market is still very stressed, in summer there is always less wind and hydroelectric generation, and that means that more combined cycles have to be used. And it is enough for Putin to say a sentence for him to shoot again, ”he says by phone. “Everything, as long as Russian gas purchases are not completely interrupted, which would indeed trigger prices and lead to a serious supply problem in Germany and Central and Eastern Europe.”

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