The way out of import dependency is expensive

Cologne (energate) - Germany is about to exchange its dependence on Russian natural gas for one on US LNG. At the same time, doing without Russian energy supplies is very expensive. This is the conclusion of an expert report by the Energy Economics Institute at the University of Cologne (Ewi), which has drawn up a series of scenarios for the price development of various energy sources until 2026 and until 2030.

Depending on the scenario, Ewi expects moderate or even drastic price developments on the energy markets. For this reason, the Institute sees both the competitiveness of Germany as an industrial location and low-income households at risk. "Overall, the importance of the social compatibility of energy policy decisions continues to increase," the experts emphasise. The medium-term price development of energy sources will be characterised by three main uncertainties, they explain. These include the development of demand for natural gas and electricity, the pace of expansion of renewable generation capacities and the availability of Russian energy sources. The expansion of renewable energies is "an essential lever for the reduction of wholesale electricity prices". The biggest uncertainty factor is energy imports from Russia. In 2021, the share of Russian energy sources in Germany's primary energy consumption was 68 per cent.
 

Gas prices remain at a high level

This aspect is crucial for the development of gas prices in Europe. If it were possible to significantly reduce gas demand and if gas imports from Russia were at least partially available, then gas prices could fall to pre-war levels by 2030, according to the experts. However, they assume that Russian gas imports to Europe will decrease significantly. According to the calculations, gas imports from Russia will fall to 75 bcm by 2026, which is roughly half the level of imports in 2021. By 2030, imports will fall further to 59 bcm.

This reduction can only be absorbed if gas demand falls and LNG imports rise. The USA has a key role to play here, "as it is there that production and liquefaction capacities are being expanded the most worldwide". US LNG, followed by LNG from Qatar as the second largest supplier to Europe, would account for up to 35 per cent of total gas imports to the EU27+UK. This would see the US replace Russia as the dominant energy supplier. If Europe succeeds in doing without Russian gas completely, the market price will remain at a very high level until 2030. If Russian energy sources were to be available in low volumes, prices would be around 5 euros/MWh above the price level of the TTF 2018.
 

Lower impact for coal and oil

For hard coal and oil, the authors assume that the embargo decided by the EU will have an effect and is already priced in in both cases. This would result in a price level for hard coal above the historical values from 2016 to 2021. Should a small share of Russian hard coal be allowed to be imported, the prices would be in the upper range of this range, according to the analysis. If global trade flows change quickly, however, the prices for hard coal and oil could move downwards much faster than gas prices after a peak in 2022.
 

Average electricity prices above 130 euros

In the area of wholesale electricity prices, there is a significant increase in the price level compared to the long-term historical prices in all scenarios considered, although well below the record values since mid-2021. Specifically, Ewi expects annual average prices between 132 and 135 euros/MWh for 2026 and 2030. The authors assume a high demand for electricity, the complete elimination of raw material imports from Russia and a moderate pace of expansion of renewables. Electricity prices of 79 euros/MWh (2026) and 52 euros/MWh (2030), on the other hand, would result from moderate electricity demand, low availability of Russian energy imports and a strong expansion of renewables. /am