Eesti Gaas: If natural gas becomes cheaper in September, we will review October price hike

  • 2022-09-02
  • BNS/TBT Staff

TALLINN – The stock exchange price of gas has fallen by more than a third in a week, which may force Estonian energy company Eesti Gaas to reduce the scope of its price increase planned for October, the daily Postimees writes.

While on Sept. 1, the price of Eesti Gaas' flexible package of natural gas for household customers rose from 1.5 euros to 2.65 euros per cubic meter, then from Oct. 1 the gas company plans to raise the price to 4.1 euros. In just two months, heating would become 2.7 times more expensive for Eesti Gaas customers without taking compensations into account. In an annual comparison, the price would be almost eight times more expensive.

Margus Kaasik, chairman of the management board of Eesti Gaas, said that the reason for the price increase is that the company buys natural gas based on the market price. At the same time, at the beginning of July, the company signed a contract with the Norwegian energy group Equinor for the purchase of 2 terawatt-hours of liquefied natural gas (LNG). The gas will arrive at the Klaipeda LNG terminal in October and November.

In the first half of July, the stock market price of gas was around 150 euros per megawatt-hour, which is twice cheaper as last week, so why is the last weeks' price being charged for gas?

Kaasik explained to the daily that while a binding supply contract was signed with Equinor in July, the price of gas is still based on the current market price, which means that, for the delivery arriving in October, it will be based on the October price, not the July price. "We did not buy gas at a fixed price, because there were no definite buyers at that price at that time and we cannot take on the price risk," Kaasik said.

"This year, we have prioritized the Estonian market for gas sales and rather held back on foreign markets. With the acquired winter stock, we can cover the gas needs of our Estonian customers and work is underway on procuring the next quantities," Kaasik added.

He added that when the Paldiski terminal becomes operational at the end of the year and the security of supply in the Finland-Baltic region improves, the company can be bolder in sales, assuming that the price of gas will also be at an acceptable level for customers.

"At the moment, there is a gentle positive note in the air regarding the price -- the stock exchange price has been declining for a few days, but it is not clear whether the trend will remain permanent. If the price drops in September, we can also review the October price increase for household customers," Kaasik added.

Kaasik considers state support mechanisms for household customers to deal with high energy bills and to prevent payment difficulties to be very important. "We also support the efforts of entrepreneurs to have the state pay more attention to their coping and offer mitigating measures, including a price ceiling similar to household customers. For our part, we have advised business customers to make cost-effectiveness analyzes depending on each one's specific heating and production equipment and make reasonable investments to combine different energy sources," he said.

However, Eesti Gaas largely determines pricing in the market. "Eesti Gaas' market share fluctuates between 50-65 percent by month, in June it was 65 percent," Kaasik said, adding that the dynamics of the market share has remained similar throughout the last years, higher in summer and lower in winter.

Since the company's market power is great, Postimees also asked the opinion of the Competition Authority about the price increases. According to Kulli Haab, head of the authority's regulatory service, gas prices have indeed risen a lot compared to a year ago, and continued high gas prices are predicted in the future as well, but the Competition Authority will not interfere in the company's pricing, as it is a free market service.

"According to the economic activity register, there are 53 registered natural gas sellers in Estonia as of 2021, of which 21 are actively operating on the market," Haab said. "The consumer can change the gas distributor at any time. The change is easy and does not involve additional costs or interruption of supply," she added.

At the same time, according to the portal, other sellers have prices at quite similar levels at the moment.