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Effect of GEO 114: When gas prices rise, the real sector takes over the burden

1 July 2019
Consumers
Energynomics

Although the effect of increasing the price of gas for the unregulated segment following Ordinance 114 was anticipated by specialists, no one expected it to reach new historic highs. In general, when one of the market segments is subsidized in various forms – in the present case it is a price limitation for households and thermal units, the other market participants take up the burden in a first stage but subsequently price rises is also reflected on the protected category, through inflation.

The price of domestic gas had an average of 101.24 lei per MWh on the stock exchange in May, which is a historic record for Romanian gas, according to the data of the Romanian Stock Exchange, quoted by Agerpres.

Government Emergency Ordinance 114/2018 – approved in December 2018 – set the price for all domestic gas production for the next three years to 68 lei per MWh. GEO 19/2019 – approved in March 2019 – amended this provision, leaving only fixed quantities of gas for household consumers and thermal power plants at fixed prices starting May 1. This has led to an increase in the price of domestically-produced gas that is traded on the stock exchange and is intended for economic agents. Thus, if in 2018 the price of Romanian gas had an average of 79 lei per MWh, in January this year it reached 92 lei per MWh, in February and March it had an average of 90 lei per MWh, then went up to 95.86 lei per MWh in April (after 19/2019) and to 101.24 lei per MWh in May.

This is while April and May are characterized by low consumption and low prices on this market. By comparison, in May 2018, domestic gas production price was of 74 lei per MWh, and in May 2017, of 70 lei.

At the same time, since April, the price of domestic gas has grown higher than that of imports, although it has so far been lower. Thus, on the Vienna gas exchange, the CEGH Front Month Index for May 2019 was the equivalent of 81.56 lei per MWh, 20% lower than that of Romanian gas. Also, last year, in May, the Vienna price was of 93 lei per MWh, 20% higher, compared to 74 lei in Bucharest. In 2017, in Vienna, the gas traded with 76 lei per MWh in May, 8% more than the 70 lei / MWh quotation for Romanian gas.

Autor: Energynomics

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