Why is gas going up…while prices are going down

It’s a surprising paradox at first glance: while the price of gas on European exchanges has been falling for three weeks, reaching levels below pre-war levels in Ukraine, the price paid by consumers is actually skyrocketing. Indeed, 2023 begins on a sour note for gas heaters, which have so far been relatively protected from the effects of the energy crisis. Because from January, the bill of French households subscribing to the regulated sales tariff (TRV), i.e. the Engie offer controlled by the public authorities, compared to October 31, 2021, will increase by 15%, i.e. by about 130 euros. per person and year. A revaluation that promises to lead to all other contracts on the rise at Engie as elsewhere.

However, at the same time, gas prices on the Old Continent’s benchmark exchange, the Title Transfer Facility (TTF), continue to fall. Thus, this Wednesday, a megawatt-hour (MWh) of gas was sold for the next day at less than €65, which is significantly lower than in recent months, especially when MW reached €300 after peaking in August. Announcement of reduction of deliveries by Moscow. Most importantly, prices have also fallen in the futures markets (where prices are set for delivery in the future, 3 months to 5 years from now).): Contracts for the fourth quarter of 2023 traded around €80 per MWh on Wednesday, compared with €150 in recent months. But what happens when the prices paid by settled customers go in the opposite direction?

Electricity and gas: The downside of Europe’s spectacular fall in energy prices

Distortion mirror of the tariff shield

To understand this, first of all, it is necessary to distinguish the wholesale gas market, where prices have been falling for three weeks, and the retail market, which is reflected in the bills of individual customers. Schematically, the first is similar to Rungis, a huge food market where experts collect fresh produce, and the second is closer to a supermarket.

Thus, the wholesale gas market corresponds to the segment where energy suppliers and certain large industrial consumers buy and sell large quantities of this hydrocarbon for resale. On the other hand, the retail market includes end consumers such as individuals or small businesses. However, if the former clearly affects the latter, MW prices can vary greatly depending on the relevant market. In particular, the amounts currently paid by individuals through the retail market no longer correspond to the real prices of the wholesale market. And this is for a simple reason: the tariff shield introduced by the government to protect consumers for more than a year distorts reality by making gas much cheaper than its real value.

Without this assistance, the regulated gas rate would have increased by 122% on December 1st! In fact, it was frozen from October 2021. Later, it was decided to allow its increase from 2023, but limit it to 15%. +120% “Explains La Tribune Xavier Pinona, energy broker.

In other words, the prices actually paid by settled customers have little or no relation to the reality of the markets anymore. This applies not only to TRVgaz customers, who make up about 25% of private gas consumers. Because TRV actually acts as a reference or beacon for most alternative suppliers (except Engie) who index themselves to it (so as not to lose customers). They also receive financial compensation from the government to help them adjust despite the crisis, keeping household monthly payments at a distance from extreme volatility in the markets to protect them.

Upcoming meeting

That’s not all: from the beginning, the executive warned that this tariff shield does not resemble a subsidy and ” catch would happen. And for good reason, taxpayers must be called to the rescue to enable this claptrap. ” First of all, it is he who pays more than the consumer. This is a choice made in France. But that’s a stratospheric amount of public funding that must be at least partially repaid. explains Jacques Persebois, an economist specializing in energy.

As a result, even if wholesale gas prices fall, residential customers will have to pay more than expected after the crisis to make up for more than a year of assistance. In fact, to speak of “catch-up,” prices would have to drop much lower than they are now: ” At 60 or 70 euros per MWh, we remain well above what was considered normal before the crisis, i.e. 20-25 euros. », emphasizes Jacques Persebois. In other words, the market remains very volatile, and so individuals continue to benefit from the tariff shield despite the lull, which adds a bit more to the total they will have to make up with their bills later.

“If we go back to €30 per MWh, maybe the government will start talking about capping it. For example, it will keep the TRV at +15% or decide on a new increase to start the compensation, “suggests Xavier Pinon.

Therefore, there is no need to hope that your monthly payments will decrease soon. And even with a complete market turnaround, supply conditions in Europe are likely to remain fragile. The regulated price of gas sales for individuals is planned to be eliminated by July 2023, especially under a law passed in 2019 to comply with free competition requirements from Brussels. unreadable.