From Breakingviews: After paying through the nose to fill its gas storage reserves to 92%, the EU is seeking to secure more affordable fuel. Measures like curbing price volatility, club purchases or flexible caps will be no panacea, writes LJucca:
Pressure gauges are seen at Zsana Storage Site in Zsana, Hungary, May 20, 2022. REUTERS/Bernadett Szabo
MILAN, Oct 19 - The European Union is scrambling to make gas more affordable. After paying through the nose to rebuild emergency reserves, EU leaders will consider whether to introduce flexible price caps, club purchases and even a new trading benchmark in a bid to lower energy prices. Such measures are unlikely to make a big difference. Curbing demand will be the key.. In the preceding decade, one-month future contracts at the Title Transfer Facility , Europe’s main trading hub, rarely exceeded 30 euros per megawatt hour . This started to change last autumn, when gas production could not keep up with the bloc’s robust economic rebound from the pandemic.
Steep gas transaction levels, which also push up electricity costs, are unsustainable. Countries like Hungary, the Czech Republic and Romania may face a 2023 power bill equivalent to about 15% of GDP, according to industry analysts ICIS. But finding a solution is hard.Proposed circuit breakers on sudden price moves could prevent daily swings exceeding 5%, but would not alter the overall direction.
The only thing that seems to work is reducing demand. One-month TTF contracts started to decline once European nations slowed down buying to replenish their emergency storage facilities, now 92% full. An unusually mild autumn has also reduced the need for heating, dragging prices to four-month lows of 118 euros per MWh . With non-Russian gas producers already pumping at full capacity, Europe can’t do much to boost supply.
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