TODAY.AZ / Business

Which factors lead to higher gas prices in Europe?

11 January 2019 [13:26] - TODAY.AZ

By  Trend


The economic recovery and rising oil prices have led to higher gas prices in Europe, Trend reports citing the Energy prices and costs in Europe Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions.

"Natural gas prices are based on global fossil fuel — including oil — prices. Clearly the great dispersion between gas prices in 2011-2014 has diminished with the growth of global LNG markets and other supplies; however more recently the economic recovery and rising oil prices have led to higher gas prices. As noted by European Commission’s President Jean-Claude Juncker in July 2018, the EU continues to be a market open for increased US gas exports," said the report.

The authors of the report believe that convergence of the European and Asian prices in the spring and summer months could be particularly advantageous to replenish storage. "Producer countries (US, Russia, Canada) continue to have lower prices than net importers (Japan, China, Korea), with the EU in between."

"EU retail gas markets are taxed at lower rates for business, for competitiveness reasons, and for households in some Member States, where gas has been the main source of household heating and therefore a primary need. Thus retail prices are largely determined by wholesale prices and the energy component accounts for up to 80 percent of the price," said the report.

The report reads that in absolute terms the energy component decreased by 2.4 percent annually for industrial consumers and became 11 percent less spread-out over the last decade indicating progress towards the completion of the single gas market." It is also interesting to note the lower taxes and levies faced by large energy industrial consumers compared to medium energy industrial consumers."

Southern Gas Corridor, which envisages transportation of 10 billion cubic meters of Azerbaijani gas from the Caspian region through Georgia and Turkey to Europe, is expected to enhance the competitiveness in the gas market of Europe, thereby lowering the gas prices in the region.

The Southern Gas Corridor project aims to increase and diversify European energy supply by bringing gas resources from the Caspian Sea to markets in Europe. The Southern Gas Corridor comprises the following four projects: (i) operation of Shah Deniz natural gas-condensate field ("SD1" project) and its full-field development ("SD2'" project), (ii) the operation of the South Caucasus Pipeline ("SCP" project) and its expansion ("SCPX" project), (iii) the construction of the Trans-Anatolian Natural Gas Pipeline ("TANAP" project) and (iv) the construction of the Trans Adriatic Pipeline ("TAP" project) (SD2, SCPX, TANAP and TAP collectively, the "Projects").

Earlier, TAP’s Country Manager for Albania Michele Elia said that TAP can have a positive effect on gas price.

"TAP can also have a positive effect on prices. It is a simple law of economics: if there is only one tomato seller in the market, it will set the price. But if another seller comes with a more competitive price, it is good for the consumer," noted Elia.

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