Why gas prices are rising – Les Échos

Posted on Sep 29, 2021, 10:34 AM

The gas bill for some of the French may be higher this winter. Engie’s regulated tariffs will increase by a further 12.6% from October 1, compared to the scale in effect applicable since September 1. This is the largest increase observed since 2013 and the monthly payment of the calculation – which was previously done by quarter.

For households, this surge in prices is likely to be felt during the winter period, when it will be necessary to heat up. For industrial large consumers (chemicals, steel, agrifood, etc.), the bill is heavier today. The rise in prices also increases the price of electricity produced by gas-fired power stations.

1. What is the price of gas in France made up of and why is it so volatile?

The law provides that the regulated tariffs cover the costs of the incumbent supplier who markets them. This is why these prices can change every month. The Energy Regulatory Commission (CRE), in charge of making these calculations, is based on the costs of supply, the costs of transport, distribution, storage and marketing of gas.

In detail, the supply costs cover the purchase of natural gas from producers and take into account the extraction of deposits and transport to the French borders. “France does not have gas on its territory and imports 99% of its natural gas consumption, it is therefore exposed, like the rest of Europe, to variations in European and world market prices”, recalls the CRE in his latest press release.


Thus, on October 1, the amount of the invoice including VAT for a household heated by gas and having a contract at Engie’s TRVG, is 1,482 euros / year, i.e. an increase of 29% since January 1, 2019 and by 44% since January 1, 2020.

2. What factors explain this surge in prices?

In the first place, this increase is explained by the simultaneous restart of the world economies after the health crisis. Suddenly, energy resources, including gas, are in high demand, which automatically pushes up prices.

This is particularly the case in China. “According to our statistics, this month China has become the world’s leading importer of liquefied natural gas, ahead of Japan”, recently explained to “Echos” Tom Marzec-Manser, Analyst at ICIS.

Another factor cited by the Energy Regulatory Commission (CRE): the prices of CO₂ emission allowances in Europe, these “rights to pollute” which are exchanged on the European market, jumped, pushing the consumption of gas for power generation to the detriment of coal.

Finally, last winter was relatively cold in Europe and especially longer than usual. This led to the consumption of gas for heating, which was 15% higher than that of 2020 during the first five months of the year in France, according to GRTgaz. As a result, European stocks were seriously damaged and could not be fully replenished during the summer, due, once again, to strong global demand.

3. Should we blame Russia?

France and Europe’s gas supply sources are largely dependent on Norway and Russia, as this graph from the Energy Regulatory Commission shows:

In the North Sea, production was slowed down by technical infrastructure shutdowns, delayed last year because of the pandemic. Europe’s supply is therefore currently based on Russia. And more particularly on Gazprom, the Russian giant of the sector, which holds the monopoly of exports to Europe by pipeline.

Under normal circumstances, Gazprom would have increased its exports to meet demand. But this year, the gas giant was in the process of building the Nord Stream 2 gas pipeline, recently completed . The site had been delayed for a long time by the American sanctions against Moscow.

What does this have to do with soaring prices? The group close to the Kremlin is suspected – in particular by some 40 MEPs who have requested an investigation from the Commission – of having reduced its gas supplies passing through Ukraine to push Germany to approve the entry more quickly in service of this gas pipeline across the Baltic Sea – which Gazprom denies.

4. Are further increases to be feared this winter?

The Energy Regulatory Commission says it anticipates “a maintenance of these very high price levels during autumn 2021 and winter 2021-2022, then a drop from spring and summer 2022, before a return to normal for the year 2023 ”.

This increase should however be put into perspective. The prices paid by the French consumer hardly increased compared to their level of autumn 2018, at the time of the crisis of the “yellow vests”. Indeed, no increase in the price of kWh was notified between January and October 2019. During the health crisis, at the time of confinement, prices were also found extremely low due to weak demand.


5. How to soften the bill?

The increase in regulated tariffs (TRV) does not directly affect all French households subscribing to gas, but only those holding a TRV contract with Engie. This represents around 3.1 million consumers out of the 10.7 million individuals connected to the gas network. This rate isendangered : its total elimination is scheduled for summer 2023.

Among the 7.6 million residential consumers with a market offer contract, “more than half have taken fixed price contracts over several years and are not affected in the short term by this increase”, says the Commission of energy regulation (CRE) in its latest press release.

In addition, anticipating the difficulties that the rise in gas and electricity prices could cause for many households, especially during winter, the government announced the payment in December of an “exceptional” aid of 100. euros to 5.8 million French people in “Energy check” . New aid measures will also be announced “before the end of October,” a government source said.

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