"The sooner we transition to cleaner energy sources, the less likely we are to see such high energy prices again"

Even though CO2 was also initially mentioned as one of the causes of the price increase, the truth is that this development has been as expected. It complies with its function of being an incentive for the reduction of the use of fossil fuels. In fact, at this time it should be significantly above current levels in order to prevent coal from being more competitive than gas. In any case, the current situation is transitory and as can be seen in market prices, it is expected to return to normal starting in the second quarter of 2022.

Why has there been this surge in gas prices? Simply because a number of circumstances coincided that simultaneously produced an imbalance between supply and demand. These effects are well known and have been included in a large number of recent analyses and publications: an increase in demand in Asia due to the end of the pandemic and emission reduction policies, higher demand for gas in Europe caused by a 2020-21 winter that was intense and long, which produced a significant delay in the start of replenishing storage tanks for the following winter; a reduction of Russian gas exports to Europe, due to a number of geopolitical reasons as well as internal and commercial demand.

Once we fully understand the current situation, its causes and its foreseeable temporal extension, perhaps the question will be: And this can happen again? Should we get used to this and prepare ourselves for these types of episodes on a recurring basis?

Gas will be an important fuel during energy transition, especially after completely stopping the use of coal in electricity generation. This will be the case in Europe and, perhaps above all, it will be the case in Asia. So, the demand for gas will continue to increase in the coming years. However, what gas suppliers are seeing is that their business is going to decline in the long run. And what can already be seen is that long-term contracts, historically so common in this industry, are giving way to an increasing proportion of spot contracts.

This is what causes volatility in sales forecasts and great uncertainty with regard to investments to increase or renew capacity. The trend for these suppliers is to use spot prices to compensate for the lack of revenue derived from long-term contracts.

So it is possible that these episodes will recur, especially in the winters, when demand is mainly concentrated. Another possibility is that we may see a growing interest from retailers in signing supply contracts, at least in the medium term, which would enable them to rely less on spot purchases.

In any case, the more we accelerate towards energy transition by electrifying the economy and meeting electricity demand through renewable generation, the less likely it is that we will suffer these episodes of significant increases in the price of energy caused by developments in prices for commodities that we lack.