Gas market: How can the increase in gas prices in 2021 be explained?

Gas market: How can the increase in gas prices in 2021 be explained?

Nobody will be unaware that the price of gas, and of energy more generally is on the rise. The same is true for all of Europe. Although, in France, the government has announced a gas price freeze for 2022, it is likely that the gas price in the wholesale markets will continue to rise. What is the reason behind this “surge”? What is its impact on gas infrastructure operators like Teréga? Focus on the operation of the gas market and the causes of this increase.

Gas market, a context of a continuous increase in the price

In July 2021, the regulated gas tariff in France increased by almost 10% compared to the previous month. An increase in the price of gas that was followed by further increases: +5.3% first in August, then +8.7% in September, and +13,9% in October… To such an extent that the regulated gas tariff – the reference price for most natural gas suppliers in France – has reached a record high. On the European wholesale market, EEX(PEG index), the price was thus greater than €100/MWh last October, when it was “only” €44, just two and a half months earlier. A price that still stands above 90€/MWh in November.

According to the Commission for Energy Regulation (CRE), this constant rise in European wholesale gas prices has lasted since March 2021. If, in recent years, we have seen regular fluctuations in the price of gas, these significant changes should be emphasised because… they may well continue!

Who are the players in the gas market in France?

There are different players in this market. Indeed, while for most of their needs and demands, consumers (households, businesses, etc.) often deal with one contact – their gas supplier – they are not the only players in the market. In France, it is made up of:

  • gas producers which are, for the most part, large multinational companies, since almost all the gas consumed today in France is natural gas imported from abroad. Most of these imports come from Norway, the Netherlands and Russia;

  • gas suppliers (Engie and so-called "alternative” suppliers);

  • Transport and distribution grid managers  (GRTgaz, Teréga, GRDF, etc.);

  • gas storage managers (Storengy, Teréga)

various supervisory bodies, including the Energy Regulatory Commission (CRE) – an independent administrative authority that oversees the smooth operation of the free market in electricity and gas – the energy ombudsman and the General Directorate of Energy and the Climate (DGEC), etc.

How does the gas market in France work?

Overall, the gas market operates on a supply and demand basis, illustrated by the sources of supply of gas and its outlets. On the one hand, there are the “sources” that come from:

  • removal from storage,

  • land imports,

  • imports of liquefied natural gas called LNG.

On the other hand, possible outlets are:

  • storage,

  • end-customer consumption,

  • exports.

In this market, players have two ways of making gas purchases:

  • over the counter: a long-term contract is entered into between two players bilaterally, or through an intermediary (broker), historically indexed to the price of oil;

On a Trading Platform: exchanges between market players take place in France on the PEG (Gas Trading Point). This PEG is that of the TRF (Trading Region France), a single market area in France since 2018.


This is the price increase of a MWh in France between 10 August and 23 September 2021. (Source: Tarif-Gaz)


increases in the regulated gas tariff in France in three months (+10%, +5.3%, +8.7%, +12.3%)


This is the share of gas imports in gas consumption in France.


Managers of the French natural gas transport grid: GRTgaz and Teréga.

What are the causes of the increase in gas prices?

This constant increase in natural gas prices is the result of the alignment of several factors.

The first is the weather

Indeed, the cold spring resulted in a fall in gas stocks until May and the injection campaign being delayed. Before the winter, we can therefore see strong demand in Europe to replenish stocks. Moreover, this autumn, renewable electricity production has been depressed for several weeks, driving up gas consumption to produce electricity.

The second is the economic context

The slowing of the health crisis has helped boost the global economic recovery. This is reflected in high demand in Asia, where gas is increasingly replacing coal as a result of environmental policies, particularly in China. This is resulting in mass liquefied natural gas (LNG) flows being drawn to the region and is driving up prices.

The third major factor is geostrategic

Indeed, construction of the pipeline connecting Russia and Germany through the Baltic Sea – Nord Stream 2 – has been completed, but its commissioning date has been blocked by the German regulator. Uncertainty which creates concern, and thus tension, in relation to gas prices. At the same time, Norway and Russia, the main suppliers to Europe and France, are not in a position to increase their exports to meet demand. In parallel, the Maghreb-Europe pipeline has been closed since 1 November against a backdrop of tensions between Algeria and Morocco.

Gas prices incorporate all publicly available information and thus reflect how the market players envisage the situation will develop over the coming months. For several weeks, the trend has been clear: prices will remain high until the end of the winter (above €90/MWh) and will probably not fall back below the €40/MWh mark before May.

What are the consequences for a gas player like Teréga?

The recent increases in gas prices do not have a direct impact on Teréga and our business. When we buy gas (our own needs, grid balancing, etc.), our costs are recognised by the CRE and therefore covered by the tariff. However, our customers which are energy suppliers (shippers) are much more exposed by this price increase. If the level of their capacity subscriptions in our infrastructure has not yet been affected, they could choose to take less risk, if the situation persists, etc.

Our connected (industrial) customers could also be affected: their energy bills could eventually encourage them to reduce their gas consumption. Finally, for Teréga, this could also result in lower-cost storage capacity subscriptions.

The role of gas storage in France is essential to mitigate the effect of the price increases, as it allows distribution to be guaranteed over the entire grid, even during peak consumption periods (e.g. cold periods without wind). Without controlled storage, the price of gas would vary from season to season, which would have a strong impact on both individual and business customers.