European natural gas and energy prices skyrocket, shortages are on the table

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Gas prices have increased significantly over the past week. Tension over a possible Russian invasion of Ukraine increased at the end of last week. Summit of EU heads of state and government have responded and then on Saturday that a Russian invasion, and there is certainly no permission for the use of the Nord Stream 2, that is, the two sub-sea pipeline to transport Russian natural gas through the Baltic sea to Germany. On Tuesday, the new German energy minister confirmed this once again. The weather is also difficult, because the wind force decreased day after day this week and that led to higher gas consumption by gas plants. Despite the mild winter weather, the energy costs remain high. How does this affect households?

Maybe just put on an extra warm sweater and throw it on the couch? That seems to be a better way to stay warm at the moment than turning the heating up. A megawatt-hour of gas costs around 119 euros this week on the EU wholesale market where energy suppliers buy their gas. That’s about as high as the peak in October. Gas prices then rose to record levels due to a combination of factors. The main reason was that Europe’s gas reserves are historically low this year and demand for gas is hugely high as the economy in many countries is on the rise again. That is why, in a severe winter, there is a risk of a shortage, which pushes the price up.

After the peak, the greatest panic seemed to have disappeared and prices fell from mid-October. However, this rest appears to be short-lived. The Russian troop build-up near the Ukrainian border is creating a lot of tension. When there is a real conflict, the consequences are great. An important gas pipeline from Russia to the EU runs right through Ukraine, and if those supplies come to a halt, there is a high risk of a shortage in Europe.

The energy bill will increase significantly for most households in the coming period. Energy suppliers charge the higher purchase prices to their customers and anyone with a variable contract or with a contract that needs to be renewed will therefore deposit more money. For this reason, the government has announced that it has released 3.2 billion euros to partially compensate all households for the higher energy bill. In addition, households with an income at or just above the social minimum receive at least 200 euros extra via the municipality.

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