Could worst of the gas price surge be behind us?

A key problem for the Government in planning its response to the energy crisis is uncertainty. And a lot of this comes down to one issue – the price of gas.

The wholesale price of gas surged during August, reaching more than €340 per megawatt hour on the benchmark Dutch exchange. From a mid-2021 price of €20, that was some rise. Cue panic as the implications for households and businesses started to sink in.

But in the last few weeks, prices have moderated a bit and are now just over €200 per megawatt hour. That’s still eye-wateringly high, but some forecasters now feel they could ease back further. The British market, on which Ireland relies, has seen similar moderating trends, helped by so-far stable flows of Norwegian gas.

Goldman Sachs has said that Europe appears to have “successfully solved” the short-term issue of building storage and cutting demand to survive without Russian gas. Given normal winter conditions, it expects wholesale prices could fall to about €100 per megawatt hour – still more than five times pre-crisis levels but significantly lower than current levels.

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Worst forecasts

Bills for households and businesses would remain high, but the worst forecasts for the winter of significant further rises would not transpire. Goldmans feels prices could come under a bit of further pressure next summer as countries move to replenish rundown stocks.

These are vital issues for governments across Europe. They would make it easier and more affordable to support households and businesses; in particular the prospect that we may be at the worst of the price pressures in the next few months would allow more money to be spent safely now, in the knowledge that pressure would ease next year.

The problem, of course, is that none of this is certain. We have seen how volatile the wholesale markets can be and the balance between supply and demand is obviously really tight.

Governments cannot rely on the better scenario playing out, but they will hope it does. Politically it would mean that Vladimir Putin’s leverage via his weaponisation of gas is a lot less than feared. Economically the potential damage would be less than feared. Fingers crossed.