In Europe, the exchange price of natural gas has reached its highest level since December 2022. As winter approaches, experts suggest that prices could rise even further, Latvian Television reported on October 21.
Meanwhile, heating tariffs have already increased in many parts of Latvia. Could the latest rise in gas prices trigger another tariff increase during this heating season, and to what extent would this affect Latvian residents?
As winter approaches, the situation on the European natural gas market has become increasingly tense. Prices have risen sharply in recent months. The main reason is the conflict in the Middle East, which has led to a significant reduction in gas supplies to the global market. At the same time, Europe’s gas storage facilities are less full than usual ahead of winter. This increases the need to replenish stocks at a time when global gas availability is limited.
“It is very difficult to forecast gas prices going forward. Well, in principle, I think the main factors that could still influence the price would be a cold winter. That could be one factor that might drive prices up further. But, on the other hand, if there is any hope that relations might normalise, that things might improve in the Middle East, then, in principle, the price of gas could also adjust downwards,” said Erlands Krongorns, an economist at the Latvian Central Bank.
Meanwhile, heating tariffs have already risen in many parts of Latvia. In October, heating became more expensive for 39 regulated companies, whilst the average tariff increased by almost 8 per cent compared with September. However, the current rise in natural gas prices does not affect all heat producers equally. Most of the heat energy in Latvia is produced using wood chips. Furthermore, many companies have already purchased fuel for this heating season in advance at lower prices than those currently prevailing.
“Most of our heat supply companies have, however, already purchased their fuel, perhaps leaving a small amount to be bought on the spot market,” said Valdis Vītoliņš, a board member of the Latvian Heat Supply Companies Association. “If this price has been fixed at a lower level than it is now, it means that the company will get through the coldest winter months at this relatively low price.”
However, even these companies are not entirely protected from price fluctuations. If the winter is particularly cold and the fuel they have purchased is not enough, additional gas will have to be bought at the prices in force at that time.
For companies with variable-price contracts, on the other hand, the increase in costs may be felt sooner. That is why the heating tariff may also change in the middle of winter.
“There shouldn’t be any dramatic price rises, but they can happen nonetheless. If, for example, January and February turn out to be cold and additional supplies are needed. So there could be various scenarios, I would say,” added Vītoliņš.
Wood chips, which are widely used for heating in Latvia, will also become more expensive. Vītoliņš explained that their price is affected by both rising fuel costs and uncertainty in the energy market. Wood chip producers have become more cautious and are increasingly reluctant to enter into long-term supply contracts, as they are unsure at what price they will be able to produce and supply the fuel several months’ time.
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