Wholesale gas prices fall as Europe prepares to intervene in energy markets | Gas

Wholesale gas prices have fallen sharply in a rare respite from recent highs, on signs that Europe is preparing to intervene directly in energy markets.

The European Commission said it was working “hard” on an emergency package and a longer-term “structural reform of the electricity market” to tackle soaring prices, while Efforts to fill gas storage facilities appear to be ahead of schedule.

The wholesale UK overnight gas price fell more than 20% to 447p per therm on Tuesday, while the month ahead contract fell by a quarter, to 473p per therm.

Prices have fallen from near-record levels, but are still 12 times higher than at the start of 2021, before the energy crisis began.

It came as Business Secretary Kwasi Kwarteng announced progress in efforts to reopen the UK’s largest gas storage facility. Energy group Centrica is working to bring the Rough facility back into service, located under the North Sea off the east coast of Yorkshire.

“After months of work, the UK oil and gas regulator has today granted the required approvals and consents,” Kwarteng said on Tuesday evening, announcing the green light from the North Sea Transition Authority.

European countries are rushing to fill their gas storage facilities before winter, fearing that Russia could further reduce its gas supplies. European gas storage facilities are now almost 80% full on average, rapidly approaching the EU’s target for countries to reach 80% full by November 1.

German Economy Minister Robert Habeck said he expected gas prices to fall soon as Germany, Europe’s biggest gas consumer, made progress on its storage targets and would not have to pay the high asking prices to continue to replenish stocks.

Habeck also reportedly told other EU energy ministers that Germany was open to considering a European gas price cap, a move it had previously opposed.

The European Commission is working on as-yet-undefined emergency proposals to ease the cost for households this winter, ahead of a meeting of EU energy ministers on September 9. A longer-term plan for market intervention seems more advanced.

“It’s on track. We are in such a price spike that it has opened up political space,” a European diplomat told Agence France-Presse news agency, speaking on condition of anonymity to explain the debate.

“The European Commission will launch an impact assessment in the autumn and we can expect a proposal by early next year,” he said.

Commission chair Ursula von der Leyen said on Monday that Brussels was preparing an intervention to separate electricity prices from soaring gas prices, with the aim of ensuring that electricity prices reflect the energies cheaper renewables.

Von der Leyen’s intervention will put pressure on Britain’s next prime minister to follow suit and announce a package of measures to tackle the bills. Last week, regulator Ofgem set the next price cap for the energy sector at £3,549, which will be implemented in October.

Ofgem is consulting on the advisability of decoupling the wholesale price of electricity from the price of gas.

RBC Europe analyst John Musk said: “It is clear in our view that current electricity prices of €700-800 per megawatt hour are unsustainable and creating windfalls for some generators.

“The question is how long it will take to implement any reform given the need to maintain investor confidence in power. At current high electricity prices, we may see new one-off taxes or voluntary contributions, across Europe, from generators in the interim period, while longer-term structural reforms are designed and implemented.

However, uncertainties remain regarding the near-term outlook for gas supply. Russia’s Gazprom will halt natural gas exports to Europe through its main Nord Stream 1 gas pipeline for three days from Wednesday to carry out maintenance work.

The shutdown follows a 10-day maintenance period in July and the Nord Stream pipeline was already operating at just a fifth of its normal capacity. Supply interruptions have raised fears that Russia could completely halt flows just as demand surges in winter.

Separately, on Tuesday, one of France’s biggest gas suppliers, Engie, said Gazprom would further reduce deliveries to the company, due to a disagreement between them over the application of certain contracts. Deliveries for Engie from Gazprom have fallen considerably since the start of the war in Ukraine.

In Austria, Vienna’s main electricity company, Wien Energie, has asked the federal government for billions of euros in credit to cover margin costs so that it can continue to trade in the European electricity futures market.