In European wholesale, natural gas prices rose sharply after the start of the Iran war. Will electricity and gas become more expensive for households again?
The energy industry is holding back on making more precise forecasts. “There is no general answer to whether and how current developments on the wholesale markets affect consumer prices for electricity and gas,” says the BDEW association. This depends on the procurement and hedging strategies of the respective suppliers and on the contracts of the end customers. “In general, however, end customer prices for electricity and gas are fixed for a long time in advance by most suppliers and hedged on the futures markets.”
Wholesale price increases from Friday to Wednesday
Iran responded to the attacks by the USA and Israel with counterattacks. Shipping traffic through the Strait of Hormuz, a bottleneck in global energy trade, came to a standstill. This triggered a price jump at the beginning of the week on the Dutch stock exchange TTF in Amsterdam, which is important for Europe.
In addition, the Qatari oil and gas company Qatar Energy stopped producing liquefied natural gas (LNG) after attacks on facilities in two cities. Qatar is one of the world’s most important LNG producers. About 20 percent of the world’s liquefied natural gas is transported through the Strait of Hormuz. It comes primarily from Qatar.
Temporary doubling of the wholesale gas price
On Tuesday, the price for a megawatt hour of natural gas, which is to be delivered in April, temporarily climbed to almost 66 euros, the highest level in more than three years. On Friday – before the war broke out – he went into the weekend with just under 32 euros.
In late Tuesday trading, an announcement by US President Donald Trump caused prices to fall again. Accordingly, the US Navy will escort tankers passing through the Strait of Hormuz if necessary. Trump has also ordered an agency to provide risk insurance and guarantees for all maritime trade in the region.
Crucial question: When will the strait be passable again?
Prices continued to fall on Wednesday – in the late afternoon a megawatt hour cost around 50 euros, which was still a good 56 percent higher than Friday’s price.
But what happens next? “The most important thing worldwide is: How long will the closure last?” says gas market expert Andreas Schröder from the analysis company ICIS. “If the conflict is over tomorrow, then we can almost ignore it because household customers mostly have one-year contracts.” But if the conflict lasts longer now, gas prices would also rise for them next year.
According to ICIS calculations, a four-week blockade of the Strait of Hormuz would raise TTF prices to 60 euros per megawatt hour in March. Summer prices would also be permanently 20 percent higher than pre-war prices. According to the forecast, a three-month closure could even mean prices of 85 euros.
Schröder pointed out another effect: expensive LNG will lead to a greater emptying of European gas storage facilities, which in turn means a higher demand for storage in the summer. However, he believes it is possible that politicians will reduce the mandatory storage quantities in order to reduce price pressure.
IW expert: Rising gas prices can also make electricity more expensive
Energy expert Andreas Fischer from the German Economic Institute (IW) points to the connection between gas and electricity prices: “If the conflict lasts longer, then we will automatically see it in the electricity price.” The reason: Power plants powered by natural gas are often the power plants that determine the wholesale price of electricity. This could then also have an impact on electricity prices for end consumers in the longer term.
Is there a threat of a gas shortage?
The price is one thing, the supply of gas is another. Are there any shortages? No, says BDEW managing director Kerstin Andreae. “According to current estimates, no direct impact on the physical gas supply in Germany is to be expected.” In addition to gas storage and domestic production, German supply is secured through imports via pipeline, especially from Norway, as well as LNG imports from a number of countries.
