The price of electricity for customers in the regulated market (PVPC) in Spain stood at 160 euros MWh in the last week, 48% below the price set before the start of the Russian invasion of Ukraine.
The fixed term of the bill for those who have a regulated rate (TUR1) in the gas supply has gone from 31.2 euros in January 2021 to the current 5.1 euros, both due to the drop in the price of gas and aid public. In the case of gasoline and diesel (now without public aid), the price per liter has fallen by 22% in the case of gasoline and 25% in that of diesel, and both are paid around two cents per below the price prior to the outbreak of the war. The drop in energy prices is being felt in inflation, which in May stood at 3.2%, the lowest level since July 2021.
Spain is no exception. The average prices of gas and oil in Europe during the month of May have been at their lowest level since 2021, according to the latest analysis by the consultancy Aleasoft. The pockets of all Europeans are already noticing the drop in energy prices in international markets.
The great doubt that rages: Have the markets lost their fear of war? The bombs continue to fall on Ukraine and now also on Russian territory, threatening an escalation of the war that is not reflected on the energy front. Is it, then, just a truce or is it that both contests have become uncoupled?
“It is difficult to make forecasts in a context as volatile as the current one. Any excuse can be used to trigger prices againâ€, points out Luis Deza, director of Energy at the consultancy Mazars.
No analyst is capable at this moment of putting his hand in the fire to ensure that this “energetic peace” is lasting. “There is a very strange situation in the markets, nobody rules out that any day the explosion of a drone in a strategic place could, again, unleash panic. We continuously monitor the day to day and if everything remains the same, we hope that the trend continues in the summer, because these low prices favor us more than the high ones, which cause demand to plummetâ€, acknowledges Nacho Rabadán, general director of the Spanish Confederation of Service Station Entrepreneurs (CEEES).
Surprises aside, the key to that “energy peace†lies beyond the geopolitical context. In his favor he has run and will run the weather conditions. That now there is less tension in the price of gas and oil has, in part, to do with the mild winter temperatures. After the collection of inventories carried out last year due to the fear of shortages, the moderate winter has made it possible not to spend everything accumulated, so now fewer purchases have to be made for next winter and the temperatures of that period will directly influence the demand.
In any case, the fear of lack of supply has been deflated. “40% of the gas that reached Europe in 2021 came from Russia. There is no liquefied natural gas (LNG), the gas that is transported by ship and not through pipelines, in the world to make up for a Putin tap shutdown. That was the fear that was not fulfilledâ€, explains Luis Deza.
In Europe, the large gas-demanding industries, especially in Germany and Poland, replaced it with coal. To this has been added that China’s awakening from the pandemic was not as fierce as expected. China, along with South Korea and Japan, are large consumers of LNG, but the recovery of activity in the great Asian power after the pandemic has been slower than expected.
“It grows by 2.5%, far from the average of 6% at which it used to grow. But not only China grows less. It is also betting more on replacing gas with coal and, above all, with renewable energies. With which the expected return to consumption prior to the pandemic is becoming less likely, â€says Deza.
And it is precisely in these renewable energies that consumers can place the most hope so that their bills continue to fall. China is the world’s leading investor in projects that develop offshore wind power.
The response plan to the war in Ukraine has also focused on promoting renewable energy with huge amounts of money for its development. As has happened in Spain, where in the past month of May there have been historical productions in both photovoltaic and wind power.
Oil and Russia are other components of this peculiar item of Energy Risk. The price of a barrel of Brent crude, the benchmark in Europe, has fallen by 17% since April of this year. It is around 75 dollars, very far from the more than 100 that it reached at the height of the war. Fear of economic contraction in the United States and the escalation of central bank rates are pushing down the price of crude oil. “The OPEC countries have spent months trying to balance the market with production cuts, but not even they comply with the nor Russia, which continues to market its production despite the European veto, mainly through Turkeyâ€, explains Inés Calderón, spokesperson for the Association of Oil Exporters (AOP).
Yesterday, OPEC and Russia agreed to extend the current supply reduction of 40.46 million barrels a day until the end of 2024, without further cuts. It remains to be seen if they comply, although it seems difficult for Russia to close the faucet for financing the war.
