4 reasons why gas prices will rise in 2022 - Forbes Advisor Germany

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4 reasons why gas prices will rise in 2022 - Forbes Advisor Germany
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Germany is one of the countries in the world that uses gas the most for heating. Over 40 gas storage facilities ensure that your home is warm during the cold months. At the moment, however, the gas storage tanks are hardly full - and simply topping up is difficult because gas is extremely expensive at the moment.

According to the Federal Association of Energy and Water Industries (BEDW), the gas price for households in apartment buildings rose by 83% at the beginning of 2022, from 6.47 cents/kWh to an average of 11.84 cents/kWh. If you sign a new contract, you have to expect higher prices again. Some gas suppliers are currently not accepting new customers.

In our guide you can read why gas is so expensive at the moment and how the price could develop in the future.

How is the gas price formed?

In the past, the price of gas was largely linked to the price of oil. The producers, importers and suppliers of gas have stipulated this in agreements within the industry so as not to compete with themselves. When the price of oil rises, the price of gas usually rises shortly thereafter. The connection is no longer necessarily given today.

Today, the price of gas (like the price of electricity) is negotiated either between the producer and supplier in long-term contracts - or in the short term on the gas exchange. However, trading on the exchange is still very young: it was not until 2007 that the gas exchange was launched on the Leipzig energy exchange EEX.

How is the gas price made up?

The gas price is made up of three components.

1. Gas procurement and sales

The purchase price for gas depends on how well the gas supplier has negotiated with you. Either he has concluded contracts with gas suppliers over several years or he trades on the gas exchange. In addition to the purchase price, there are also the costs for sales and marketing as well as a profit mark-up, the so-called margin. This entire component of the gas price makes up 63% of the final price and can be influenced by the gas supplier.

2. network charges

More than 700 gas network operators in Germany charge fees for the transport of gas through their networks - the so-called network fees. Your gas supplier passes these costs on to you. The gas networks are operated, maintained and expanded with these fees. Gas is transported underground via pipes.

The costs for the gas meters, i.e. their operation, maintenance and measurement, are also included in the network fee. Network charges vary from state to state, but on average they account for 11% of the gas price.

3. taxes and expenses

Almost 26% of the gas price goes to the state as a concession fee, CO2 price, natural gas tax and sales tax.

The concession fee is paid to cities and municipalities for the construction and operation of the gas pipelines. The amount of the fee depends on the population of the community and ranges from 0.51 cents/kWh in smaller towns such as Xanten in North Rhine-Westphalia to 0.93 cents/kWh in large towns such as Hamburg.

The CO2 price is intended to provide incentives for environmentally friendly behavior and will increase annually until 2026. In 2022, one tonne of CO2 emissions will cost 30 euros, which means an additional 0.65 cents/kWh on the price of gas.

In addition, 0.55 cents/kWh are added to the gas price as natural gas tax. The sales tax is calculated on the basis of the total sum of gas procurement, sales, network fees, natural gas tax, concession fee and CO2 price.

What is driving gas prices up?

Several factors caused gas prices to skyrocket in late 2021 and early 2022. We will show you the four most important ones:

1. Increased demand for natural gas

4 reasons why gas price will rise in 2022 – Forbes Advisor Germany

More gas is currently needed in the world than has been produced in recent months. In principle, a higher demand for gas with a low supply causes gas prices to continue to rise.

2. Gas is increasingly needed for electricity production

Not only gas, but also electricity is currently much more in demand. One problem is that for quite a while, due to the weather, less electricity from renewable energies has been fed into the grid. According to the Federal Environment Agency, the proportion of green electricity in 2021 was 5% lower than in the previous year - despite the expansion of the power plant park.

Gas-fired power plants have to produce additional electricity on days with little sun and wind. In the future, they also want to do without other types of power plants such as nuclear or (in the medium term) coal. Gas is therefore likely to be increasingly needed for electricity production, which tends to drive up gas prices.

3. Higher fees and charges

As with electricity, charges and fees are also increasing for gas. According to Check24, the costs for transport through the gas networks (network charges) will increase by an average of 2% in 2022, depending on the federal state. The price of CO2 rose from 0.54 cents/kWh to 0.65 cents/kWh in 2022, an increase of 20%. By 2025, the CO2 price is expected to rise to 1.1 cents per kWh.

4. Political reasons

Germany imports gas mainly from three countries: Russia, Norway and the Netherlands. You can find out how gas is pumped there in our FAQ. At almost 40%, we get the most gas from Russia. Gas operators usually conclude supply contracts with a term of several decades. Theoretically, gas would have to be supplied.

But Russia keeps reducing its gas exports for a variety of reasons. There could be economic reasons behind this. It is also possible that Russia wants to use this to build up political pressure, for example so that the Nord Stream 2 Baltic Sea pipeline can be launched. The state gas company Gazprom could use this to deliver more gas to Germany.

In addition, the Russian-Ukrainian gas dispute, which has flared up again and again since 2005, could lead to reduced deliveries and thus price fluctuations.

How will the gas price develop in 2022?

Many experts find it difficult to forecast the development of gas prices. The comparison portal Check24 sees the wholesale price staying at a high level.

"The current gas deliveries from the USA are defusing the situation somewhat, but it remains to be seen how sustainable the development is," says Steffen Suttner, Managing Director Energy.

source: tradingeconomics.com

According to Linda Marie Holm, senior editor at the Strom-Report portal, prices could stabilize again depending on the season. The political situation in the Ukraine is fuel for further price jumps.

Political factors also suggest that gas prices should continue to rise. The CO2 certificates decided in the climate package of the German federal government will be sold at fixed prices that increase every year until 2025. From 2026, the certificates will be auctioned with upper and lower limits, from 2027 the market will determine the certificate prices. Depending on supply and demand, gas prices could then become even more expensive.

What are politicians and consumer advocates doing?

In order to absorb the additional costs for low earners, the federal government is planning relief. A corresponding draft law by the Ministry of Construction dates from the beginning of January 2022.

Anyone who received housing benefit for at least one month between October 2021 and March 2022 should probably receive a subsidy in the summer of 2022. A one-time subsidy of 135 euros is planned for those living alone. Two-person households should get a flat rate of 175 euros. For each additional person in the household, another 35 euros should be added.

The board of directors of the Federation of German Consumer Organizations, Klaus Müller, welcomes the planned subsidy for heating costs for low earners, but considers the help to be insufficient. He calls on the federal government to increase the subsidy to at least 500 euros. Households that are currently unable to pay their electricity or gas bills should also continue to be able to rely on the supply (so-called cut-offs should be suspended).

What are the alternatives to gas?

An example of a possible alternative to heating with gas is hydrogen. However, this is currently neither available over a large area nor can it be transported via the current gas networks. A conversion of the networks is already being discussed and some pilot projects have been completed. However, the network charges would probably increase as a result of the conversion.

If you have your own home or condominium, then heat from renewable energies such as biomass or geothermal energy could be an alternative for you. It is cheap to produce, but the cost of such heating systems is high. However, according to the Renewable Energy Agency, heating from renewable sources could cost less over the life of a heater than heating with gas or oil.

What can you do?

If you own your property or rent a gas heating system, you can usually look around for a cheaper gas supplier. However, this is more difficult at the moment. Because of the rising gas prices, many gas suppliers are no longer accepting new customers at all. Nevertheless, compare the gas prices on portals such as Check24, Verivox or WechselWoche at least once a year.

If you are renting and your consumption is billed via the utility bill, your landlord will select the gas provider. If your heating costs increase by more than 10%, your landlord must explain the price increase and make a gas comparison.

In the case of a "considerable increase" above the normal level, there can be a so-called violation of the principle of economic efficiency, as Jutta Hartmann from the German Tenants' Association knows. In this case, you have the option of reducing the utility bill to an appropriate level. However: Even then, the landlord is not obliged to select the cheapest provider, but can also use the provider's reliability as a selection criterion.

To motivate your landlord to change provider, you can compare yourself and provide him with a list of cheaper providers. Maybe your landlord will respond to the change with this workload reduction. Alternatively, you can also contact a tenant protection association if the landlord won't even talk to you.

Regardless of whether you live for rent or own your property - what you can always try to do is save on heating costs, i.e. reduce your consumption. In the article about smart home devices, we explain how smart thermostats can help you save money.

FAQ

Where does the natural gas come from?

The network operators import the gas that we use in Germany mainly from Russia, Norway and the Netherlands. Only 10% comes from domestic production. The most commonly used method for gas production is the drilling method. Once a natural gas deposit has been found, a large drill is used to insert a long metal rod into gas-producing rock, allowing the gas to flow upwards, be cleaned and then fed into the gas network. From there it is forwarded to consumers.