Wholesale gas prices tumble as Europe prepares to intervene in energy markets

The wholesale price of gas has dropped sharply in a rare respite from recent highs on signs that Europe is preparing to intervene directly in energy markets.

The European Commission said it was working “flat out” on an emergency package, and on a longer-term “structural reform of the electricity market” to combat soaring prices while efforts to fill gas storage facilities appear to be ahead of schedule.

The day-ahead UK wholesale gas price tumbled by more than 20% to 447p per therm on Tuesday, while the month-ahead contract dropped by a quarter, to 473p per therm.

Prices eased from near record highs but are still 12 times higher than at the start of 2021, before the energy crisis began.

It came as the business secretary, Kwasi Kwarteng, announced progress on efforts to reopen the UK’s biggest gas storage facility. The energy group Centrica is working to bring the Rough facility, located under the North Sea off the east Yorkshire coast, back into use.

“After months of work, the UK oil and gas regulator has today granted the required approvals and consents,” Kwarteng said on Tuesday evening, announcing the green light from the North Sea Transition Authority.

European countries are rushing to fill their gas storage facilities before the winter, amid fears that Russia may further reduce gas supplies. European gas storage facilities are now almost 80% full on average, rapidly closing in on an EU target for countries to hit 80% full by 1 November.

The German economy minister Robert Habeck said he expected gas prices to fall soon as Germany, Europe’s largest gas consumer, was making progress on its storage targets and would not have to pay the high asking prices to continue replenishing stocks.

Habeck also reportedly told other European energy ministers that Germany is willing to consider a European price cap on gas, a measure it has previously argued against.

The European Commission is working on as yet undefined emergency proposals to ease the cost for households this winter, before a meeting of EU energy ministers on 9 September. A longer-term plan for market intervention appears to be more advanced.

“It’s on the tracks. We’re in such a price spike that it has opened up political space,” a European diplomat told Agence France-Presse news agency, speaking on condition of anonymity to explain the debate.

“The European Commission will launch an impact assessment in the autumn and we can expect a proposal by the start of next year,” he said.

The commission’s president, Ursula von der Leyen, said on Monday that Brussels was preparing an intervention to separate power prices from the soaring cost of gas, in an effort to ensure electricity prices reflected cheaper renewable energy.

Von der Leyen’s intervention will pile pressure on the next UK prime minister to follow suit and announce a package of measures to tackle bills. Last week, the regulator Ofgem set the next energy industry price cap at £3,549, which will be implemented in October.

Ofgem is consulting on whether to decouple the wholesale price of electricity from the price of gas.

The RBC Europe analyst John Musk said: “It is clear, in our view, that current electricity prices of €700-800 per megawatt hour are unsustainable and creating windfalls for some generators.

“The question is how long any reform will take to implement given the need to maintain investor confidence in power. At current high power prices it may be we see further windfall taxes or voluntary contributions, across Europe, from generators in the interim period while longer term structural reforms are designed and implemented.”

However, there remains uncertainty over the short-term outlook for gas supplies. Russia’s Gazprom will halt natural gas exports to Europe via its main Nord Stream 1 pipeline for three days from Wednesday to carry out maintenance.

The shut-off follows a 10-day maintenance period in July and the Nord Stream pipeline had already been running at just a fifth of its normal capacity. The interruptions to supply have caused fears that Russia could halt flows entirely just as demand spikes in winter.

Separately, on Tuesday one of France’s largest gas suppliers, Engie, said that Gazprom would further reduce deliveries to the company, owing to a disagreement between them on the application of some contracts. Deliveries for Engie from Gazprom have decreased substantially since the beginning of the war in Ukraine.

In Austria, Vienna’s main power company, Wien Energie, has asked the federal government for billions of euros in credit to cover margin costs so it can keep trading on the European power-futures market.