PGNiG has a limited impact on the price of gas to customers

Natural gas prices are breaking records.

The largest domestic supplier of gas to households, PGNiG Retail Turnover (PGNIG OD), already three times in this year, has applied to the President of the Energy Regulatory Office (URE) to increase the gas price for individual customers. In April this year, the rate increased by 5.6 percent, which at unchanged distribution costs meant an increase of 2-3.5% (depending on the tariff group). In August, the average increase in fuel costs was by far higher and amounted to around 12%. Since October new prices have entered again, this time higher by 7.4 percent.

However, the increase in gas prices did not result, contrary to the current opinion, from the internal calculations of PGNig OD traders. The key influence on the level of accounts of both wholesale and individual customers is the listing of blue fuel on stock exchanges, including the Warsaw Good Energy Exchange, where increases were much larger. In November last year, 15 euros were paid for the megawatt hour of natural gas. A month ago, the fuel price exceeded EUR 100 by setting a new ATH (abbreviated by All Time High, a record of all time). Today, after a slight decline, the value of the megawatt hour is over EUR 70. "The price that PGNiG Detail, a company from our Group, pays for gas procurement, is the largest item in the request for a change of price, which each time sends to the regulator," explains Paweł Majewski, president of PGNiG. – Such a large appreciation (growth – red) of the price of blue fuel on the stock exchange could not leave without affecting the value of end-user accounts".

The PGNiG gas price has a very limited impact on the stock exchange. It is determined by the market, which is the current ratio of demand to supply. In this year it developed for both individual and wholesale customers exceptionally unfavourable: demand, in general, grew, while supply decreased.

The growing demand was triggered by several factors. More blue fuel, firstly, needed an economy recovering the damage caused by the pandemic, including mainly China and other Southeast Asian countries, to which most liquefied natural gas (LNG) transport currently flows. Second, as a result of an exceptionally cold and long winter, the blue fuel collected in storage facilities was used to a much greater extent than usual. The third, demand-generating factor was the relatively windless end of summer. Renewable energy sources (RES), responsible for an increasing share of energy "mix", produced less energy from wind than planned. The deficits had to be replenished and the power from gas plants came into the sukurs. "The policy of the main supplier of blue fuel to the European Union, or Russian Gazprom, was imposed on adverse weather phenomena," noted President Paweł Majewski. – In order to force administrative consent to the launch of the Nord Stream 2 pipeline, it limited deliveries to the Old Continent by implementing only permanent, multi-annual contracts concluded with individual countries".

The Russian supplier practically stopped offering additional gas on the European stock exchanges and in late August suspended fuel auctions even on the Russian electronic trading platform.

Gazprom is an intermediate additive or a direct owner of a large part of gas infrastructure in the European Union. It controls, among other things, the storage of blue fuel in Germany, the Netherlands, Austria. The fact is that in this year he did not fill these warehouses on an ongoing basis before the next winter season. Even now, the level of filling is well below the standard levels at this time of year. (In contrast to Poland, where magazines are filled in 96 percent).

This introduced additional uncertainty on the market and accelerated the increase in gas prices on European exchanges.

"Additional quantities of blue fuel directed towards the market could certainly calm the situation and reduce dynamic price increases," says Paweł Majewski, president of PGNiG. – When demand is much higher than availability, prices increase naturally. But if the supply is artificially limited by one of the market participants prices go up very dynamically. This is the kind of situation we've been dealing with."

A counterweight to the rising cost of purchasing gas on the stock exchange could theoretically be domestic extraction.

However, the gas produced in Poland is only complementary to the volumes supplied by PGNiG to final customers. In the previous year, domestic consumption of raw material was nearly 20 billion metres six. For many years, domestic production has been at a stable level of about four billion metres, six, which means it represents about one fifth of the demand. These are not quantities that would affect the price of blue fuel on the stock exchanges. "The extraction can be increased, but in Poland gas resources are limited: when we discover new deposits in one place, they are near exhaustion in another", explains PGNiG's CEO.

The price stabiliser must also not be the LNG supply, which has been flowing to Europe recently. Now vessels the liquefied natural gas carriers head to other continents where their cargo can be sold at a higher price. "In particular, China and Brazil began buying huge quantities of LNG in this year, which has so far sailed to European ports," explained PGNiG's CEO. – The Middle State is ready to pay almost any price for gas, which makes exporters more profitable to sell raw material to Asia than Europe".

A poor consolation is that not only individual customers have to pay higher gas bills. Valuable madness, which is affected by the PGNiG is very limited, can be seen, first of all, in the wholesale market, in which large companies are the recipient of gas.

The largest gas volumes in Poland are consumed by the fertilizer industry, where the production cost of gas is 60-70% of the production costs. This in turn translates into the price of agricultural products, as a consequence, food products which constitute a large part of the basket of goods on the basis of which inflation is calculated. In addition, the price of gas also affects the value of petrochemical products and electricity, and it is not all products for which gas fuel is used.

Market analysts predict that prices fall only in the spring of next year, when peak demand for gas ends. "In the context of a deregulated market, which we are currently dealing with, it is difficult to predict – reserves the President of the Management Board of PGNiG. "We don't know how gas prices will be quoted on the stock exchanges this winter."

Source: PAP