Gerhard König, Chairman of WINGAS and Chair of the Steering Group on Gas at the German Association of Energy and Water Industries (BDEW), talks about the collapse of the oil price, the increased volume of natural gas on the global market, and why all that isn’t necessarily bad news.
Mr. König, what effect is the collapse in the oil price having on the gas industry?
We are operating in a challenging environment. Although the oil-gas price link is not as significant as it was some years ago, of course it still impacts on the gas price. In addition to that, there is currently a plentiful supply of natural gas on the market. That is also pushing the price down.
Some gas customers are frustrated. They are complaining that only a few gas suppliers are passing on price savings to customers. Why is that the case?
That is not the case at WINGAS. Our industry customers, for example, are paying much lower prices. Prices on the spot market have also fallen – by about 20 percent in the last three months alone. In the household segment the situation may indeed be different. But the reason for this is that it matters more for end consumers how their local utility companies have purchased their gas. And you have to know that many of them bought ahead at a fixed price a year ago – that is why they cannot profit from the low prices now, and why they cannot pass these on either. The individual procurement strategy of the suppliers plays a crucial role here. In addition, falling spot market prices have only a limited effect on the end consumer price since this is comprised largely of taxes, duties and, above all, the fees set by network operators.
In which direction do you expect the market to develop in the future?
I expect that there will be an ample supply of natural gas on the market in the future. The global markets are becoming increasingly intertwined. Asia is not showing as much demand as anticipated. In the United Stataes and Australia there are major projects underway to transport LNG worldwide. These volumes are now arriving on the market. In principle that’s good news: there is enough gas.
But that doesn’t exactly sound like good news for the business of a natural gas trader, does it?
Why not? Europe’s own production will decline, so imports of natural gas have to increase. So if there is a greater supply from various different sources that is good for the business of a gas importer like WINGAS.
Won’t the energy transition then kick natural gas off the market?
I don’t see that happening. Measured in terms of C02 emissions, natural gas complements renewable energies perfectly. As a climate-friendly source of energy, natural gas will play a big role in helping Germany transition to a greener energy supply. If offers a great deal of potential, particularly in the heating market.