BRM: Gas prices have dropped steadily, interventions have negative effects

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Bogdan Tudorache

In the first quarter of the year, natural gas transactions showed a clear increase compared to the similar period of the previous year, a period under the incidence of GEO 114. Thus, the total volumes traded in the first three months reached 10TWh, announces the Romanian Commodities Exchange (BRM), a few hours after the government decided to cap prices.

In spot markets, the average monthly quantities ranged from 400,000 to 700,000 MWh, presenting a regularity and intensity specific to this market, sufficient to ensure continuity in balancing the portfolios of market participants. The weighted average prices for the months of January-March saw a continuous decrease, from 70.8 lei/ MWh in January, to 66.4 lei/ MWh in February, respectively 59.6 lei/ MWh in March.

In the wholesale markets, the standardized forward type contracts experienced a spectacular increase towards the end of the period, only in March trading reaching a volume of over 7 TWh. The periods concerned were both the months of the second quarter of 2020, and the cold season of the following gas year, i.e QIV 2020 and QI, 2021. For Q II 2020, the weighted average price was of 59.66 lei/ MWh, about 15% lower than the regulated price imposed by ANRE (the market regulator). For the following cold season, the average price was of 74.3 lei/ MWh, being at a level of 62-65% from the prices of the same period of the previous gas year (quarter IV 2019-quarter I 2020).

”The obviously downward trend in prices is a proof of normal market re-creation, with the approach of the deadline of cancellation of the regulated prices imposed by GEO 114, starting in July. A contribution to this reduction have, normally, also the effects of the last cold season, with favorable temperatures, and the decrease of the economic activity caused by the epidemic with COVID-19. However, given that the downward trend started from the fourth quarter of 2019, announced at that time by BRM releases, as well as the fact that the following cold season is far away from the current crisis, the main causes derive from the return to market liberalization and lack of hindering of the functioning of market mechanisms,” say BRM officials.

The negative effects of the authorities’ brutal interventions in the market have thus been demonstrated for the second time in the last few years. The liberalization of prices for producers by issuing GEO 64 in 2016 was followed by a reduction and stabilization of prices, below the level expected by regulation by the authorities prior to the emergence of the ordinance and by 10-15% below the level of the Central-European stock exchange, CEGH.

The favorable situation was maintained throughout 2017 and 2018, until the new market regulation imposed by the government by the emergence of GEO 114. The provisions lacking economic logic, in total contradiction with the European legislation and applied even more erroneously by the regulatory authority have hindered the entire market, raising the prices of the cold season to more than double the other European stock exchanges.

“The current return of prices to normal with the announcement of the return to a liberalized market, demonstrated by the results above of the first quarter of the year, leaves no doubt about the solutions to be followed and the disastrous effects of the two ordinances.

„Even under these conditions, those responsible for thinking and implementing the ordinances, but not for their consequences, continue to foresee price explosions immediately after the cancellation of regulated tariffs. The market reaction, the responsible behavior of the big players (producers, distributors, traders with financial power) and the evolution of prices contradict these predictions and give a note of optimism to a difficult market.

”The first two quarters of the current year are and will continue to be affected by the effects of GEO 114, amplified and by ANRE decisions resulting from the imposition of unusually high reserve quantities during the winter period, with significant volumes contracted at extremely high prices in the market. The effects of these contracts are felt by a good part of the traders, but also by the final consumers, but one can estimate their disappearance towards the middle of the year.”

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