The sharp rise in the price of methane

The increase in the price of natural gas and other fossil fuels is starting to have effects also in the transport sector, with significant increases for distributors. LPG reached an average price of around 0.735 euros per liter, compared to the average monthly price of 0.592 a year ago. The increases also affected methane for cars, whose price fluctuates between 1.157 and 1.631 euros per kilogram, with an increase of over 20 cents per kilogram compared to a few months ago. In some distributors the price of diesel is instead between 1.624 and 1.762 euros per liter.

The increase in the price of methane in transport is particularly significant, also because among other things, methane has always been linked, especially in Italy, to important savings for the distributor. In recent days, however, as written by several newspapers , in some distributors in the center-north the price has reached 2 euros per kilogram (the full of methane is made in kilos), about twice as much as a few months ago, when it was sold for about one euro per kilogram. Although the price of natural gas has been on the rise for some time on international markets, the rise in methane for cars has been very strong in recent days as energy supply contracts were renewed earlier this month.

The sector associations are very concerned. For example Federmetano, which is the national association of methane transporters and distributors, wrote in a statement : “The sudden increase in gas market prices has pushed its value towards figures that no one would ever have imagined, constituting a real anomaly ». The association has asked the government to intervene with tax relief.

The increases, especially of methane, are due to the particular condition in which Europe has been in for some weeks now : gas reserves natural are at their historical lows since 2013, in a phase in which consumption is increasing significantly both for the arrival of the cold season and for the resumption of industrial production, after the most difficult periods of the coronavirus pandemic. The demand for gas is very high and at the same time the supply is limited, mainly due to Russia, one of the main suppliers of gas for Europe, which has not significantly increased supplies.

Natural gas is one of the main resources with which energy is produced in European countries, even in those where production takes place with a rather diversified mix and which includes numerous sources such as coal, hydroelectric , nuclear, wind, solar, oil and biomass. Italy is more exposed than other countries to gas price trends, considering that about half of the energy produced in our country is used. About two thirds of Italy’s energy needs are also covered by imports from other countries, with the resulting difficulties in keeping the prices under control.

Last week l ‘Regulatory Authority for Energy, Networks and Environment (ARERA) has communicated that in the last three months of this year the electricity bill will increase by 29.8 per cent and the gas bill by 14.4 per cent for the typical family. The rise in utility bills was partly limited by government intervention, which allocated the necessary resources to cushion the impact of rising prices. Without this provision, the increase would have been 45 percent on the electricity bill and over 30 percent on the gas one.

Tuesday 5 October natural gas prices have reached a new high on the European market, raising new concerns about the energy crisis. Contracts for gas delivery in November increased by 23 percent compared to the previous month, reaching 117.50 euros per megawatt hour, 400 percent more respect at the beginning of the year. Analysts’ forecasts for the coming months are not good, considering the expected increase in consumption especially for heating with the arrival of the cold season.

In Europe some industrial plants that consume a lot of energy have started to slow down production, constrained by the need to reduce consumption and keep some profit margin. In Germany, the chemical plant of SKW Stickstoffwerke Piesteritz, a company that produces mainly ammonia, has announced that it will cut production by 20 percent, due to the increase in the price of gas. Other companies are in the same condition and are asking governments to take action to keep prices under control.

At the same time, companies are trying to improve their efficiency to consume less energy, but the processes of updating the production lines take time and cannot be decisive in a phase that is defined as an emergency phase such as the current one. Analysts report that the crisis could deepen if gas reserves in Europe continue to decline, making it necessary to suspend certain activities. In some areas of China something similar has already happened , with the demand for industries to slow down production, to ensure the supply of electricity and gas to homes, now that temperatures are starting to drop.

China has stepped up imports of natural gas , especially from Russia, with the aim of making as little use as possible of coal, which is more polluting and which would not allow us to achieve the objectives for this year on the reduction of polluting emissions. The increased demand from Asia was used by the Russian government as a justification for lower supplies to Europe, but several observers believe that these are the result of a purely political decision.

Russia in recent months has reduced flows to Europe through its gas pipelines passing through Belarus, Poland and Ukraine, putting pressure on the activation of the Nord Stream 2 , the controversial new large gas pipeline that passes under the Baltic Sea, reaching directly to Germany.

In Europe, the reduction in production is affecting some of the largest fertilizer producers. There could therefore be consequences for other sectors, such as agriculture, with further effects on the price of food. As energy costs rise, there is usually an increase in the prices of numerous other goods, with the risk of inflation rising above the levels desired by government economic policies.

At the moment there don’t seem to be many solutions to the problem. Equinor, Norway’s leading state-owned oil company, is increasing gas supplies to Europe by stepping up production from two of its own mining areas in the North Sea. Increased supplies should alleviate the situation, but cannot be decisive and several countries, such as France and Spain, have asked the European Union to develop a common strategy to tackle the problem of energy prices.