Energy Crisis: 3 Analysts’ Estimates of Prices and Sufficiency in 2023

The energy crisis with large increases in gas, oil and electricity prices was undoubtedly the second major event of 2022, after Russia’s invasion of Ukraine.

The countries of Europe were caught unprepared in terms of energy sufficiency but also in dealing with large price increases. Gazprom’s dependence on natural gas has caused major upheavals in energy costs, while EU citizens they even faced the serious possibility of an extended blackout or a winter without heating.

In a very short period of time, however, the 27, even in the midst of major disagreements, managed to replenish the quantities of natural gas and draw up emergency plans.

In 2023

But will Europe continue to be plagued by the energy crisis in 2023? Will natural gas prices skyrocket again to the unrealistic levels of 150, 180 and 300 euros per Megawatt hour? Will we have natural gas to meet the needs of electricity, heating and economic activity?

OT addressed three experienced energy analysts asking them for their predictions for the energy crisis in 2023.

Associate Professor of the National technical University of AThens Haris Doukas, Energy Strategy analyst, Academic Director of the Greek Energy Forum, and scientific associate of ELIAMEP for energy issues Michalis Mathioulakis and Doctor of Engineering at the University of Duisburg-Essen and expert on Energy Policy and Markets Giorgos Stamtsis seek to give answers to the aforementioned questions

The war

All three energy market experts agree on the decisive role that the outcome of Russia’s war against Ukraine will have on the size of the energy crisis: “Don’t forget that we still have a war going on in our neighborhood. Its outcome will determine the developments in the economy and energy sector as well”, notes Mr. Mathioulakis, while for his part, Mr. Doukas emphasizes that “my assessments are made on the basis of a consolidated situation on the front of the war for 2023, i.e. without a diplomatic solution in sight”.

And Mr. Stamtsis, in turn, observes the importance of the evolution of the war on the issues of natural gas prices.

However, it is not only the issue of the war in Ukraine that affects the situation in the European energy markets. Mr. Mathioulakis adds to the geopolitical factors and the issue of energy security in the Balkans: “Energy insecurity is a dominant element in the region and combined with de-lignitization, it is possible that the markets will be affected in 2023.”

The recession

Among the factors that will determine the price outcome is the expected economic recession: “The main factor that will determine the course of prices, subject to geopolitical developments, is the expectation of a global economic recession,” says Mr. Mathioulakis adding: “It is the anticipation of a major recession that is pushing down demand estimates. And this fact is what keeps prices low in the markets.” He also insists on the issue of the EU’s manipulations: “A mistake made by the EU is that it does not take into account that the market is psychology. It works with what market players believe. They expect a big recession and their estimates show low demand for energy which will also push prices lower. Therefore, the prices will also be shaped, depending on the size of the recession.”

The energy analyst notes that “another big event is needed to reverse the energy crisis. And this is the recession in the form that manifests itself as, for example, with the increase in interest rates. The result is that demand is falling and we are already seeing this in the natural gas that Northern and Central European industries are buying. It is naive to believe that because of the mild weather conditions, the consumption of natural gas has decreased.”

However, Mr. Doukas shares the above opinion, but points out: “The scenario that wants the planet to sink into recession must be avoided at all costs. The whole effort made by the governments of Europe is to prevent the energy crisis from plunging the planet into recession. If we are led to the negative scenario then this will mean that the governments have failed. And then the countries that benefited most from the fiscal expansions, like Greece, will face adventures…”

Natural gas storage

OT asked the three analysts for their opinion on the issue of the completeness of natural gas storage facilities in European countries. And whether the end of winter will find them empty or sufficiently full and how this fact will affect the issues of adequacy and prices.

Giorgos Stamtsis cites the position of the German Ministry of Energy both on this issue and on the overall image of the energy market in 2023: “And in 2023, the issue of prices will put pressure on Europe. However, his estimates show that at the end of the year, in the last quarter, they will decline. In other words, we will have prices during 2023 at approximately current levels and towards the end of the year they will decline. Regarding the fullness of storage spaces, today it is at 84%. At the end of winter the fullnes will be at 40%. It is important to ensure the resupply of storage until electricity storage systems enter the market and to ensure the availability of gas-fired power plants.”

Regarding the issue of adequacy, Mr. Stamtsis emphasizes the necessity for “the E.U. to quickly run the implementation of the Regulation to accelerate the installation of power generation systems from RES, but also to include the available power markets as a fixed part of the redesign in the discussion on changing the model of the operation of the electricity market”.

For his part, Mr. Mathioulakis, on the issue of gas storage capacity, noted that “with normal market conditions, in the spring, storage areas were 17% full.” Like last year. This spring I estimate that the rate will be double. And if that happens then the fears about adequacy will diminish.” He makes it known that “in Europe, all the companies that filled storage facilities last year filled them with gas prices at 180 euros per Megawatt hour. Most energy companies have kept their storage facilities full at these prices and are supplying the market with gas from the spot market which is at 80 euros. And it is this business practice that will find us in the spring with satisfactory gas sufficiency.”

Haris Doukas does not rule out a new high in prices at the end of winter: “Perhaps we will see high prices when the winter ends and natural gas stores are required to be replenished.”

The course of prices

Michalis Mathioulakis, asked about his assessment of the course of natural gas prices in 2023, believes that “from the summer it is likely that we will see TTF natural gas prices at 50 euros per Megawatt hour”.

Haris Doukas says that “we will not see extreme prices. The establishment of the ceiling mechanism in the TTF also contributes to this. It works as pressure,” he argues.

Giorgos Stamtsis repeats his above-mentioned assessment of “a de-escalation of prices at the end of 2023, in accordance with what is predicted by the German Ministry of Energy”.

Mr. Mathioulakis also talks about the prices of the fuels used for electricity generation in Greece and the EU: “For electricity generation in Greece and the EU in the summer, natural gas will not be the most expensive fuel but it will be the lignite. We should then look at the adequacy of lignite supply. This will be the fuel which, as the most expensive, will also determine electricity prices.”

Adequacy

All three energy experts agree that the issue of sufficiency does not appear, barring reversals, to be a major concern for Europe in 2023.

In fact, Mr. Mathioulakis notes that “all these infrastructures that are being built, such as the FSRUs in Germany, the Netherlands and Greece, show that in the next two years, alternative sources of natural gas supply will be ensured. However”, he adds, “we should realize that as the share of RES in the energy mix increases, so will the need for natural gas. Europe should not return to policies of banning the disposal of natural gas and unilaterally switch to RES. Then we will be led to the same dead ends”.

However, Haris Doukas adds a reflection on the issue of energy sufficiency: “If the Russians also interrupt Turk Stream, we will have to see whether the USA and Qatar are ready to cope, to satisfy the increased demand for natural gas that will be caused in Europe”.

Oil

Analysts are also predicting lower oil prices.

Mr. Mathioulakis estimates that “crude oil will move towards 60 dollars per barrel from 75 to 80 dollars today”, citing the issue of the economic recession. For his part, Mr. Doukas believes that “oil will have a role of mild pressure on the economy. Its prices will move to such an extent that, on the one hand, they do not cause irreparable damage to the economies, and on the other hand, they also provide profits to the oil producers.”