November 29, 2021

Gas prices during cold winter days could exceed the level of RON 550/MWh

The price of gas to be delivered in the 2021/2022 winter has risen in the last 2 days by RON 71/MWh (20%) on the Romanian Commodities Exchange (BRM), due to panic among suppliers, as a result of the gas deficit that is looming at the moment for the following winter.

Evolution the weighted average price of natural gas (commodity) traded on BRM

Source: BRM

This situation is not due primarily to:

  • gas inventories in the underground storage facilities. Surely, a larger quantity of gas stored would have reduced slightly the gas deficit this winter, but it was clearly not the key to solving the problem next winter,
  • GAZPROM “scheming” GAZPROM has modified its trade policy and no longer delivered in Europe the “Cheap Summer Gas”, as it did in the last 20 years. But the same policy probably no longer applied after the big losses of this company in 2020, the company’s interest being to recover its losses through a different trade policy. But isn’t it also the mistake of companies/states that have “decided” that they would purchase for storage only the cheap gas that came every year from Russia? Hungary understood the way of things and contracted during spring gas at the market price and stored it, being the country with the greatest filling of gas storage facilities in Europe. Also, Hungary understood that the winter cold is not treated with populism, but with gas, and concluded in full campaign of debunking non-renewable resources a gas import contract for 15 years. GAZPROM is considered to blame for delivering in this period by 8% less gas than in 2018, but LNG suppliers that substantially reduced gas deliveries to Europe (as a result of directing the tankers to Asia, where demand and price are more advantageous), aren’t they to blame?

We believe the increases in recent days in gas prices are determined by suppliers’ concern on the gas deficit to be faced by Romania next winter. We believe that the deficit will be determined by the change of gas flows in the Balkans, situation that made Romania dependent mainly on gas import from Hungary, through a way too small import point compared to Romania’s import needs in difficult winter days. According to data on TRANSGAZ website, the only import point where there is an important capacity booked for the 2021/2022 winter, respectively where there are gas acquisition contracts for Romania, is Csanadpalota. This makes it possible to have real problems next winter in ensuring gas to consumers. This aspect is very well seen on BRM platform, where any short-term capacity booking in the NTS brings price corrections and as soon as the delivery contract comes to an end and the deficit reappears for the next period, the price increases in widening gaps as we get closer to the cold season (as it happened today).

Forecast of gas sources and consumption for a cold day in the 2021/2022 winter

Therefore, I believe that the main cause of the huge increase in gas prices lately is due to Romania’s Energy Policies in the last 20 years, which failed to integrate Romania in any of the new routes of European gas flows, and also failed to understand that the 2021/2022 winter will no longer be as other winters in terms of Romania’s gas supply (as a result of reconfiguration of the points through which Romania can import gas, and also of the behavior in relation to importers).

Starting from the market behavior of suppliers, taking into account the possible gas deficit in the following months, we conducted a modeling of the evolution of the price of gas as commodity traded on the exchange this winter, which we present next.

The pessimistic forecasts of gas price evolution show that it can exceed the huge value of RON 550/MWh in the following months (an 8-fold increase in prices compared to 2020), but even at this value probably the lack of gas, if we have a difficult winter, will be the biggest problem of the cold season.

Translation from Romanian by Romaniascout.