Why are gas prices rising?
Gas prices are rising year on year, so much so that the French government has ordered a freeze on tariffs, so that businesses and households are not impacted by soaring prices. Had it not been for this announcement in October 2021, gas prices would have risen by over 40%.
Let’s take a look at the factors influencing gas prices, and how to anticipate and mitigate the impact of rising prices.
What defines gas prices?
Gas prices, like many commodities, are explained by supply and demand. How, then, can we justify the fact that gas prices stagnated during 2020, when demand fell sharply during the shutdowns? This is explained by the sanitary restrictions, which reduced gas production worldwide. If production had remained similar, prices would probably have fallen. It is possible that gas producers preferred to avoid this, and that this consideration was a factor in the drop in production.
Economic recovery a factor in gas prices
When activity resumed on an international scale, demand for gas rose sharply, to supply factories and businesses. This surge in demand took production by surprise, especially as many companies sought to catch up on the production they had lost during the pandemic. Demand picked up faster than production, causing gas prices to soar. Gradually, however, gas availability and demand began to converge, and prices eventually stabilized, albeit still above pre-freeze levels.
Supplies from Russia: new gas price hikes on the horizon?
In addition to the global pandemic, the war in Russia is having an impact on gas prices. This could be through reduced production in countries taking part in the war, logistical difficulties on supply routes, or simply over-consumption by warring countries to fuel their armies.
Russian gas production little used in France
Russia is the world’s second largest gas producer. During the conflict, exports slowed down or even stopped, either because of political embargoes, or because Russia maintained its production to supply its overstretched armaments factories.
However, we can try to put this into perspective by noting that France only obtains 11% of its gas consumption (in 2015) from Russia, and that the main producer supplying France is Norway, with 42%. This does not mean, however, that the war will have no impact on gas prices in France.
War’s impact on gas prices
We might think that French companies and households, which do little business in Russia, shouldn’t be too affected. However, this is not the case for all European countries. The countries bordering France that buy more gas from Russia will have to call on new supplies, increasing demand from these producer countries, notably Norway. So if Russia stops exporting its gas, demand from other producers will increase, causing gas prices in France to rise once again. This has already happened with petrol prices.
It’s also worth noting that, although Ukraine produces little gas, it is one of the main supply routes for gas transiting to Europe from Russia. Given that the conflict is between these two countries, it is likely that new supply routes will have to be found. Congestion and supply difficulties in certain areas are to be expected. The cost of the necessary logistical changes will also be reflected in gas prices. For the time being, gas transit through Ukraine from Russia has not been interrupted, and has even increased, due to Russia’s more competitive tariffs than other European producers.
Gas prices frozen in 2022, impact on 2023
To ensure that French businesses in particular are not impacted by rising gas prices, the government has decided to freeze tariffs in October 2021. In 2021, gas prices had risen every month prior to this announcement, and have continued to rise ever since. This measure is designed to wait for prices to fall, and provides for a smoothing effect. In other words, the savings made during the freeze will be offset by a price higher than the market price when the measure ends.
What can you do to protect yourself from this upcoming gas price increase?
How to anticipate rising gas prices?
There are a number of ways you can anticipate gas price rises and protect yourself against them, with the disappearance of regulated gas tariffs. The first thing is to find the supplier who sells at the best rate. You need to make this switch when gas prices are low and you anticipate an increase.
Negotiating an energy contract is in any case a tedious operation, in which it’s best to be accompanied by a professional like Dametis.
Dametis helps you consolidate your energy bill and anticipate surprises, with :
- Sobriety solutions forenergy efficiency (producing more with the same amount of energy or maintaining the same productivity with fewer resources)
- Accurate monitoring of the amount of energy consumed to negotiate on a realistic consumption basis
- Alerts to prevent you from exceeding your maximum power consumption and reduce your bill!
- Alternative energy solutions: replacing fossil gas with renewable fuels
- Process electrification
This second solution lets you know exactly how much gas your company uses, so that your supplier can provide you with a package that includes only the gas you need. This way, you avoid paying for excess quantities, and save money without changing the price of gas.
To anticipate gas prices, you can check for factors that will influence demand or production. This could be an incident on a gas pipeline, or economic recovery in certain areas of the globe. Conversely, you can observe the development of new alternative energy sources, which, if used on a large scale, will reduce demand for gas.
To optimize your energy bill and avoid being negatively affected by gas prices, contact Dametis.
