Surge In European Gas Prices Sparks New Interest In Corporate Energy Management

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Surge In European Gas Prices Sparks New Interest In Corporate Energy Management

Gas prices are continuing to surge across Europe. According to data from the Dutch Title Transfer Facility – a key gas market in continental Europe – gas prices on the spot market grew nearly five-fold from €18.9/MWh on October 7, 2019 (pre-COVID-19) to €96.6MWh on October 7, 2021. This is being driven by a perfect storm of geopolitical events, the effects of weather and systemic changes in how countries manage their energy. In addition, supply chain issues connected to COVID-19 have also delayed crucial maintenance to gas and energy infrastructure, contributing to a tightening of gas supply in Europe.

Following more than five years of stable non-domestic gas prices in Europe, this pricing shock is bringing new visibility to the energy management agenda. The biggest impact has been on large energy users buying gas on the spot market through flexible energy contracts. This has traditionally been an attractive strategy for firms, allowing their energy brokers to take advantage of small drops in gas prices. For example, fertilizer and CO2 manufacturer CF Industries were hit hard by the recent surge in energy prices and forced to close operation at two UK sites amid soaring operational costs. In Germany, manufacturing firm SKW Stickstoffwerke Piesteritz has reduced output by 20% in response to rising energy prices.

Going forward, businesses need to plan for continuing energy price uncertainty. In the winter months, gas prices are likely to stay elevated as dropping temperatures will drive more demand. In addition, the retirement of coal plants across Europe, combined with the transition to intermittent renewable power, is making the power systems exposed to shortfalls in supply.

What does this mean for large energy users? Firms need to review their strategies across energy purchasing and energy usage to reduce their exposure to the impacts of changing gas prices. On the energy procurement side, firms coming to the end of an existing fixed gas contract should only renew their contract for their short-term. Firms with time left on their contract should remain on their current purchasing plan until the direction of gas prices become certain. In addition, high energy prices will help bolster the business case for energy efficiency projects, making this an ideal time for firms to revisit the economics for BMS optimization, HVAC control or on-site generation.

For more insights into updating your energy management programme, read our latest report Best Practices: Planning For Net Zero Carbon Buildings.

Ben Readman

Analyst, Smart Buildings

Ben is an Analyst in the Verdantix Smart Buildings practice. His research agenda currently focuses on new strategies for corporate energy management and future trends in carbon offsetting markets. Ben Joined Verdantix in 2021 having previously worked as a researcher at CECAN. He holds a Masters in Environmental Strategy from the University of Surrey and a BA in Geography from the University of Birmingham.