gas prices. Europe is increasingly dependent on gas from Russia – Pekao Bank report

Pekao Bank economists have estimated that “in recent years, gas price volatility in Europe has certainly increased, showing a particularly strong breadth during the COVID-19 crisis (and during its recovery).” They added: “In May 2020, Russian gas prices in Europe were at their lowest level in 30 years, and then in just twelve months or so, they reached a level close to a record.”

As they note, this situation has a significant impact on the gas market in Europe, which from year to year has become increasingly dependent on gas imports, including – to a large extent – from Russia.

“In the past decade, the popularity of natural gas in the European Union has clearly declined. Despite the renewed increase in consumption in recent years, its level in 2020 was 10% lower than the peak in 2010. But for several years, the level has certainly been That dependence on imports has increased, of which more than 40 percent of supplies come from Russia (the main trading partner in this area), said Bekau economists.

The price of Russian gas in August of this year. Compared to May 2020, it is 9.8 times higher, and the price of gas on the Amsterdam Stock Exchange in September this year. Compared to May 2020, it is 8.8 times higher.

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The report estimated the occurrence of severe weather events in the northern hemisphere in the first quarter of this year sharply increased demand for gas, which was also stimulated by the economic recovery, on the other hand, last year and this year were “full of unplanned production halts which limited supply.” . It is reported that in 2019 gas consumption in Europe was at the level of 537 billion cubic meters, and in 2020 blue fuel consumption decreased by 3%. It reaches 522 billion cm. Experts predict that in 2021 gas consumption in Europe will rise to 545 billion cubic meters.

The report stated: “The dynamically increasing demand for gas in Asia (especially in China) was met mainly by increased supplies of LNG. However, this year was partially lacking for Europe – LNG imports to the Old Continent recorded a significant decrease.” . As economists have pointed out, Asian countries have limited infrastructure to import natural gas, compared, for example, to the European Union, and they use this raw material mainly from offshore supplies of liquefied natural gas (LNG).

“The result of the strong increase in demand for natural gas this year is a significant increase in LNG supplies to the Asian continent – in China alone in the first eight months of 2021, it was 30% higher than in the corresponding period of 2019 (although imports of Synchronous dynamic development pipeline from Russia), the bank said.

Bank economists note that the decrease in gas supplies to Europe was accompanied by a decrease in production (the effect of shrinking resources), and the decrease in imports from Russia was not compensated for by an increase in supplies from other directions. They added: “The situation was saved mainly by gas from European storage facilities, which led to a partial depletion of the strategic reserves of this raw material, which in October 2021 were still 20% less than they were two years ago.” – .

They stressed that Russia has limited gas supplies to Europe almost exclusively via the Ukrainian gas pipeline, which – apart from pressure on Ukraine – which has lost revenue from gas transportation, but also to the European Union, has been the main factor behind the price increase in recent months. and a pressure element aimed at faster completion of the Nord Stream 2 gas pipeline.

Economists noted that the reaction to the sharp increase in European gas prices was already in the third quarter of this year. A significant decrease in its consumption – especially in the energy sector, where there has been a shift in production from gas-fired power plants to coal-fired and nuclear units. “A decrease in demand is also expected during 2022” – Pekao Bank predicts.

According to Bekao economists, the most important factors that may affect the price of gas in 2022 are: weather conditions in winter 2021-2022; Lifting the ban on some imports from Russia – depending on the completion of Nord Stream 2 and the decision of Gazprom, as well as the pace of demand growth from China, which rivals supplies to Europe.

According to their assessment, the crisis of supply and demand in Europe “cannot be kept away from the domestic market”, and the magnitude of price increases on the Polish Energy Exchange is comparable to other exchanges on the Old Continent.

They also emphasized that Polish companies are also feeling more strongly about the rapid growth of gas prices in Europe. “The increase in spot gas prices on the Polish exchange market in recent months has reached a similar level as in Western Europe. It also imposed three increases in gas prices for households approved this year by the Energy Regulatory Office – in April (growth by 5.6%), July (an increase of 12.4%) and in September (an increase of 7.4%), in total by more than 27%. At the same time, the data of the PGNiG authorities show that in the following year it is inevitable that applications for further increases will be submitted “- they added.

Economists have pointed out that rising gas prices is another cost problem for the industry, of which it is by far the most important recipient. This is especially true for some industries – fuel, chemical, metallurgical, metallurgy, energy and mining.

“Some industries will be severely affected by rising gas costs and will try to pass it on to their customers (an additional inflation factor). In the West, some factories (such as fertilizer plants) have temporarily halted production for this reason” – indicated.

Representatives of the Bekau Bank noted that Poland “is constantly reducing its dependence on supplies from Russia, although it remains high.” Economists emphasized that “from 2023, the possibilities of diversification will increase significantly with the completion of the Baltic Pipe. However, this diversification will not protect against the effects of the current price crisis.”