A combination of market conditions and structural matters has unbalanced natural gas markets throughout Europe, driving prices higher, which is severely impacting electricity prices.
Recovering economies following pandemic-induced flatness, combined with a policy applied by Russia, Europe’s main supplier, to significantly restrict gas outflow to the continent, has created energy crisis conditions.
In mid-August, Russian gas outflow through the Yamal pipeline, running across Russia, Belarus, Poland and Germany, has not exceeded 20 million cubic meters per day, following levels of as much as 49 million cubic meters per day just weeks earlier, still well under usual levels averaging 81 million cubic meters per day.
According to analysts, this reduction has been attributed to Gazprom’s preference to supply Russian gas through the Nord Stream 2 pipeline, bypassing Ukraine and Poland.
LNG supply to Europe has also fallen in recent times as Asian countries appear more willing to pay higher prices.
In addition, prices are also being impacted by EU climate-change policies designed to limit the use of fossil fuels, lignite as well carbon emissions, all of which has greatly increased demand for natural gas, not only in Europe, but Asia and the US, too, pushing up prices to levels of 48 euros per MWh in recent days.
Natural gas shortages have driven wholesale electricity prices higher. In Germany, for example, wholesale electricity prices have risen by 60 percent over the past year. In Spain, the government has reduced energy consumption taxes in an attempt to subdue the wave of price rises.
The situation in the energy market is extremely worrying as it affects economic activity and is placing millions of households at risk of finding themselves in energy poverty.