Dramatic growth in prices on the global gas and electricity markets have led to a crisis that has already been analysed far and wide for months; however, the spectrum of causes and consequences of this situation has still not been adequately elaborated. Namely, analysts have been mostly neglecting that “echo of idealism” of energy policy (focused on the goals of a low-carbon society, but inadequately on a well-managed energy transition and energy security and sustainability issues) has finally contributed to an exceptional growth in the prices in energy markets. The increase in prices amounting to a few hundred per cent jeopardises the economy and households. It indicates a distortion of energy markets while implying the need to re-examine the sustainability of existing energy paradigms.

Over the last few months, natural gas prices have increased to prices never seen before, evidently not as a result of regular trends within a competitive market. Namely, there is no global shortage of gas, nor has there been a significant increase in costs within segments of the natural gas supply chain. Record gas prices can be attributed to a series of other reasons, where analyses most often highlight the following: increase in demand due to the recovery of industrial production, increase in demand for liquid natural gas in Asia, decreased production in Norway and the Netherlands, low capacity levels in European gas storage facilities at the start of the heating season, uncertainty in terms of the commencement of the Nord Stream 2 gas pipeline and an increase in prices for emissions of gases harmful to the environment.

In the case of natural gas, the multi-month trend of exceptionally high prices may, among other things, indicate that the misconceptions of energy policy actors in the world, who have not treated natural gas as an important transition fuel in the last few years, have come to fruition. This refers to the approach advocating to cease using natural gas as well as failing to support new infrastructural projects for natural gas while neglecting the link between the electricity market and the gas market [1].

The energy transition is an exceptionally complex and dynamic process that can be managed only by adhering to the principles of flexibility and adaptability. On 2 February 2022, the European Commission approved in principle a Complementary Climate Delegated Act on mitigating climate change and adaptation, whereby certain gas and nuclear activities are included in the list of economic activities covered by the EU taxonomy. Conditions have been set for gas activities to contribute to climate neutrality and to contribute to the transition from coal to renewable energy sources.

In a geopolitical context, the relationship between the United States of America and the Russian Federation is exceptionally important. The implication of this relationship is particulary clear in the case of the large gas project Nord Stream 2, which would enable submarine pipelines to double the capacity of direct deliveries of natural gas from the Russian Federation to Germany. At the time of writing this comment, it is difficult to estimate the extent to which the operational functioning of this strategic gas pipeline may affect the transport of natural gas from Russian gas fields to Europe through traditional gas pipelines.

When considering the recent state in the global gas market, one should not neglect the effect of fearing a potential gas shortage, unfounded estimates and expectations, market speculation and the intention to make profits over the short term regardless of the total price, which will eventually be paid by economies and citizens. It is as though the key market actors are missing a dose of reality. Some of them think that a period of easy opportunities for large profits has arrived. Others are quick to accept the thesis that natural gas as a fossil fuel has no future; hence they endeavour to reap as much profit as is still possible. Moreover, it may also be that certain gas producers think that accumulating large profits will more easily cover the expected huge costs of the low-carbon transition.

All of this makes predicting gas prices unreliable. Given that gas price trends are impossible to predict accurately, the insecurity in the global gas market will continue to exist and affect prices in the future. Though the recent situation on the relevant Dutch TTF Gas Futures list does not instil too much optimism, this does not mean that gas prices will remain permanently at the existing high (or possibly even higher) level. It seems that a period of predictability has ended, and a period of unpredictability will follow.

At this moment, many countries are left with the possibility of undertaking effective intervention measures with the aim of repairing the damaging consequences and preventing the onset of new damage. The inviolability of the paradigm attributed to the liberalised gas market, which is supposed to ensure a realistic price through market mechanism and encourage gas supply security, subsequently becomes uncertain. However, the unhindered operation of a distorted market will incite price increases for numerous goods and services as well as uncontrolled inflation. In addition, many companies would experience a businesses collapse, which would jeopardise gas supply security. Furthermore, the standard of living may deteriorate, and energy poverty may increase.

Therefore, in the existing crisis circumstances, the thesis that countries can in the short-term ignore certain principles of a liberal economy may be acceptable, if the aim is to ensure economic stability, sustainability of the energy system, secure supplies and consumer protection.

[1] “Gas remains an important tool for balancing electricity markets in many regions today”. Statement on recent developments in natural gas and electricity markets, IEA, 21 September 2021.