Goldman Sachs experts believe that Europe has found a solution to the problem of its gas supply. Is it true ? Should we believe them

The relative and recent drop in the price of gas on the European wholesale markets, coupled with a very satisfactory filling of underground natural gas storage, leads certain specialists and in particular Goldman Sachs to anticipate a satisfactory supply of gas from Europe this winter.

An optimistic scenario combines filling storage, mild winter, minimum supply from Russia and a global economic slowdown which would reduce demand for energy and gas and therefore allow Europe to find more gas in the markets and at a relatively low price.

However, the situation remains complex. Russia supplied before the war in Ukraine nearly 40% of the gas consumed in Europe. But most Russian flows have been stopped by Russia itself. France no longer receives Russian gas and Germany, which is very dependent on Gazprom exports, only receives very small quantities. Deliveries through the Nordstream pipeline have been reduced to very low levels, for technical reasons according to Gazprom, more likely for obvious political reasons. Remember that gas storage only corresponds to two months of consumption. They do not allow to spend the winter.

The most likely scenario therefore remains a very low or even zero supply from Russia. Admittedly, we also receive gas from Norway and Algeria, historical suppliers, as well as from Nigeria, Qatar, the United States and in small quantities from temporary suppliers. But these historical suppliers cannot compensate for the decrease in Russian exports. Efforts towards sobriety (lower heating temperatures, better efficiency of equipment) can reduce requirements. Will these efforts allow for a quiet winter?

Will gas prices really fall? For what reasons ?

First of all, it should be remembered that gas prices were multiplied by more than five in 2021 and that when Gazprom recently showed its willingness to reduce Russian exports to Europe prices reached a price of 350 euros per MWH, ten times the price at the start of 2021.

The fall in prices over the past few days (note however a slight rise on September 14) has brought prices back to a lower level, which remains however still five times the price considered normal. 18 months ago. This fall is undoubtedly explained by a filling of storages higher than expected and a certain number of European commitments in terms of sobriety

It is difficult to predict the price of gas in the coming weeks and months. Barring an end to the hostilities in Ukraine, which is difficult to imagine in the short term, and a return to significant Russian supplies, it is unlikely that prices will return to their level of early 2021.

Does this mean that the worst of the energy crisis can be avoided? What are the consequences going to be, even in an optimistic scenario like Goldman Sachs'?

Unlike the United States, which produces a lot of gas and oil, Europe is poor in hydrocarbons and imports increasing quantities of oil and gas. To reduce Russian gas needs to zero, the European Union has adopted a plan that emphasizes energy restraint, efficiency, development renewables and of course the search for new sources of gas.

These efforts will weigh on the lives of our fellow citizens and on economic activity. Some large gas-consuming companies (glass factories for example) have simply decided to close their doors, at least temporarily.

We will no doubt avoid the worst (massive gas and electricity cuts, company closures which would result in increased unemployment) but major efforts will have to be made.

Elisabeth Borne announced a set of measures to deal with the rise in energy prices, in particular the establishment of a tariff shield limiting the rise in prices to 15% in 2023 as well as checks exceptional energy for 12 million low-income households. Are these measures going in the right direction? Are they what to do now?

The tariff shield is a necessity. The prices of gas and electricity on the European markets have been multiplied by almost ten in just over a year. Passing on this increase entirely to households would have caused a real humanitarian disaster. Limiting the increases to 15% avoids pushing part of the population into poverty but nevertheless sends a price signal encouraging each of us to reduce our consumption.

We must realize that energy, especially in these times of energy transition which will limit the use of the most abundant fossil fuels, is becoming rare and expensive.

Do these measures testify to an understanding of the way energy markets currently operate and evolve?

One can wonder about the functioning of the energy markets. These markets have been "liberated", "deregulated" for 50 years. The liberalization of the oil market does not pose a major problem. The price of oil is often controlled by the producing countries which need the budgetary revenue provided by hydrocarbons. But the volatility of the price of oil remains altogether reasonable.

The soaring price of gas and electricity is partly the result of the deregulation of these markets that began 30 years ago. Under the influence of Thatcherite ideas, the European Commission wanted to create a "competitive" market for these two products. But gas and electricity are transported by gas pipelines and power lines and this gives these products characteristics that have nothing to do with the markets of other raw materials. The increase in the price of electricity is abnormal insofar as most of the electricity is produced in Europe from coal, nuclear, hydraulic whose costs are low, but it is the cost of electricity produced from gas that provides the marginal supply necessary for market equilibrium that sets the price of electricity, obviously very high considering the price of gas.

These markets must be reformed