Why are gas prices rising?

The price of gas is increasing from year to year, to such an extent that the French state has ordered a price freeze, so that businesses and households are not impacted by soaring prices. If it had not been for this announcement in October 2021, gas prices would have increased by more than 40%.

We are going to see which factors influence gas prices, as well as ways to anticipate and lessen the impact of the rise in these prices.

Gas prices, like many commodities, are driven by supply and demand. How then can we justify that the price of gas stagnated during the year 2020, while demand fell sharply during the confinements. This is due to health restrictions, which have reduced gas production on a global scale. If production had remained similar, prices would likely have fallen. It is possible that the gas producers preferred to avoid this and that this consideration was a factor in the drop in production.

When activity picked up internationally, demand for gas rose sharply to supply factories and businesses. This sudden increase in demand has taken production by surprise, especially as many companies have sought to catch up with the production they were deprived of during the pandemic. Demand therefore picked up faster than production, which caused an explosion in gas prices. Little by little, gas availability and needs come together and prices end up stabilizing, although remaining higher than pre-freeze prices.

In addition to the global pandemic, the war in Russia is impacting gas prices. This could be due to the drop in production in the countries taking part in the war, the logistical difficulties on the supply routes, or quite simply by the overconsumption of the countries at war to supply their armies.

Russia is the world's second largest gas producer. During the conflict, exports will slow down, or even stop, whether because of political embargoes, or because Russia will keep its production to supply the over-revving arms factories.

However, we can try to put things into perspective by noting that France only gets supplies from Russia for 11% of its gas consumption (in 2015), and that the main producer supplying France is Norway, with 42%. However, this does not mean that the war will not have an impact on gas prices in France.

We could say to ourselves that French companies and households, which only get a few supplies from Russia, should not be too affected. However, this is not the case for all countries in Europe. The countries bordering France which obtain more supplies from Russia will have to call on new supplies, increasing demand from these producing countries, in particular Norway, which means that if Russia stops exporting its gas, the demand from other producers will increase, which will cause a further increase in gas prices in France. This has already been the case for gasoline prices.

It should also be noted that Ukraine, although producing little gas, is one of the main supply routes for gas passing through Europe from Russia. Since 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 must be anticipated. The cost of necessary logistical changes will also be passed on to gas prices. For the moment, the transit of gas through Ukrainian soil from Russia has not been interrupted, and has even increased, due to Russia's tariffs, which are more competitive than other European producers.

So that French companies in particular are not affected by the rise in gas prices, the government decided to freeze the prices in October 2021. In 2021, the price of gas had increased each month before this announcement, and continued to increase since. This measure is intended to wait for prices to fall, and provides for smoothing. That is to say, the savings made during the freeze will be offset by a price higher than the market price when this measure ends.

How can we protect ourselves from this increase in the price of gas to come?