After Germany accepted the EU’s request for a mechanism to control wholesale prices throughout the upcoming winter, benchmark prices for natural gas in Europe dropped again on Friday, moving back toward their lowest levels in four months.
Front-month futures for the Dutch TTF contract, which acts as a benchmark for northwest Europe, were down 9.9% at 114.60 euros per megawatt-hour as of 05:50 ET (09:50 GMT), closing down on the previous week’s low of 107.3 EUR/MWh. German Chancellor Olaf Scholz abandoned his objection to EU Commission proposals to implement a “dynamic price ceiling” to the TTF and maybe other futures contracts during a meeting of EU heads of government that lasted into the early hours of Friday morning.
We May Witness Fewer Price Hikes in Energy Sector
Even if the mechanism’s finer points still need to be worked out, it may help avoid spikes like those that occurred earlier this summer when the market had to react to the loss of Russian gas supply as a result of the consequences of the Ukraine war. The Commission expects that the second meeting of Energy Ministers on Tuesday will result in a final agreement on the mechanism. The loss of Russian supplies had raised concerns that EU members could have to ration gas over the next winter. Still, these concerns have subsided over the past few days and weeks since practically all members have surpassed their early gas storage facility filling goals.
Due to this and somewhat warmer-than-average weather for October, spot prices have fallen significantly. The price of longer-dated TTF contracts dropped, indicating that it will be more difficult to restock storage the next year, which should be the first complete year without substantial Russian gas imports in forty years. Analysts claim that other import routes, such as pipelines from North Africa and the Caucasus or liquefied natural gas, cannot completely replace the Russian amounts.
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