Gas at the TTF exchange hits an all-time record. What do record prices mean for biogas?

On 7 March 2022 gas prices at the Dutch TTF exchange, the European benchmark, reached a record level: during the session the front-month contract exceeded €300 per MWh, that is several times more than in autumn 2021, when prices already seemed extreme. The jump was driven by fears of supply interruption from Russia and by sanctions on the Russian economy. For the biogas industry this is at once an opportunity (more expensive fossil gas) and a risk (more expensive fertilisers, steel, energy).

What changes

Gas at TTF largely sets wholesale prices across Europe. Record quotations quickly feed through into the costs of electricity, heat and industrial production, as well as the prices of nitrogen fertilisers, whose production consumes large amounts of gas. The market is reacting not to a physical lack of gas but to the risk of shortage: Europe must refill its storage before next winter, and the number of alternative sources to Russian supplies – LNG, pipelines from Norway and North Africa – is limited.

It is worth remembering that in long-term contracts for gas supplies to Poland, prices do not always directly reflect exchange quotations. The record levels concern mainly exchange trading and customers who buy gas at market prices.

Significance for the industry in Poland

For agricultural biogas plants that sell electricity and heat, the rise in gas prices raises energy prices but does not automatically change the terms of sale in existing support systems. In the case of biomethane – a fuel that can replace grid gas – more expensive fossil gas improves the profitability of projects. An additional benefit is the value of digestate as a fertiliser: prices of mineral fertilisers are going up along with gas, and digestate is becoming an attractive substitute for part of the doses for farmers.

On the other side of the balance are investment costs: steel, equipment, installations and energy are getting more expensive, and inflation is pushing up interest rates. When planning new installations, price volatility and delivery times must therefore be taken into account.

How to read exchange records

TTF quotations are an indicator of market sentiment and of the cost of refilling stocks, not the price that every customer pays. Swings within a single session can be very large, and the futures market reacts to every political piece of news. For a biogas investor, more important than a one-day record is the average price over a horizon of several years and the terms of agreements for the offtake of biomethane or energy. A sensible approach is to secure revenue with long-term contracts, instead of basing the financial model on momentary peaks.

What next

Gas prices will remain strongly influenced by geopolitical events, and the European Commission announced for 8 March a package of measures to reduce dependence on Russia. For biogas plants, the key question will be whether the crisis translates into lasting changes in policy: a target for biomethane, simplified grid connection and stable support.