This review looks at developments in gas billing indices and preparations for the opening of the gas market.
Gas prices have continued the decline that began last autumn. This applies to customers whose prices are linked to the Gasum index: Tehotempo, Tempo, Kotikulta and Gourmet customers, as well as new customers transferred through acquisitions from Fortum and Porvoon Energia.
The gas billing index used in Finland consists of global oil prices (Brent crude), coal prices (API2) and the domestic market basic price index (Statistics Finland’s D35 energy index). The underlying oil, coal and domestic market indices change monthly.
Billing indices are calculated by averaging the monthly values of each underlying index over the preceding six months. Oil has a 40% weighting, coal 30% and the domestic market basic price index 30%. Prices for products in our price list are generally reviewed monthly.
The six-month oil price index has fallen by around 15% since autumn. A sharp decline in global coal prices is having an even greater downward effect on gas prices: the six-month coal index has fallen by 27%. The domestic market basic price index (D35) has risen slightly since autumn.
The gas billing index for June is 0.93, compared with 1.07 in November—a decline of 13% in just over six months. It is forecast to fall further to around 0.85 during the rest of the year. If oil and coal derivatives remain at current price levels, the billing index will stay around that level in early 2020. The total gas price includes transmission and energy taxes as well as the gas selling price. The gas selling price accounts for around 30–40% of the total delivered cost, including transmission and taxes.
The market opening is fast approaching
Finland’s wholesale and retail natural gas markets will open to competition at the start of 2020. Preparations have progressed largely according to plan.
Construction of the onshore and offshore pipelines needed to connect Finland’s and the Baltic countries’ markets is on schedule. According to Baltic Connector Oy, which is building the Finnish sections, the Finnish onshore pipeline and offshore pipe-laying work are due to finish in July. Construction of Finland’s compressor station is also on schedule. Commissioning of Estonia’s compressor station has, however, been delayed. The gas connection between the countries will still open at the turn of the year, although transmission capacity is expected to be below normal during the first quarter.
Under the new Natural Gas Market Act, gas transmission operations will be separated from Gasum into an independent company by the start of 2020. Named Gasgrid Finland, the new company will begin operating on 1 January 2020.
Further information about the new transmission company and pipeline construction is available at www.figas.fi and www.balticconnector.fi.
Effects of the market opening
Gas sales and distribution product structures will change. One significant change is that wholesale gas transmission costs will move from the distribution price into the gas selling price. The gas distribution company will continue to bill for distribution services—charges relating to use of the distribution network—and energy taxes.
Another practical change concerns calorific value. Finland will switch from net to gross calorific value, in line with the rest of Europe. In practice, the gas unit price in EUR/MWh will fall, while consumption measured in MWh will rise. On a gross calorific value basis, a cubic metre of gas contains around 10% more heat energy in megawatt-hours or kilowatt-hours than on a net basis. This is a technical change with no effect on the cost of using gas, but it should be taken into account when comparing prices. Prices expressed using gross calorific value are around 10% lower than those expressed using the current net calorific value.
The market opening will bring many other changes, most of which we believe will improve gas’s competitiveness against other forms of energy. At Suomen Kaasuenergia, we see the benefits and opportunities very positively.
Our own preparations have progressed well. During the summer, we will finalise pricing structures and price lists, among other things, aiming to publish the new price list in September. After the summer holiday period, we will provide more details about the changes and practical steps arising from the market opening. We will be happy to answer questions about the opening and its effects.
Pekka Karinen
Suomen Kaasuenergia is a leading company specialising in gas distribution and retail sales, also offering a wide range of gas-based energy solutions. It operates in 18 locations in southern Finland and is Finland’s largest gas retailer and distributor by customer numbers (26,000), gas sales (100 million m³) and pipeline length (1,000 km). The company has a long history, with its origins dating back to the 1860s, when Helsinki’s first gas lights were lit.