The financial crisis is causing oil prices to fall. Against this backdrop, many consumers expect the price of gas to fall at the same time. Stadtwerke Gießen AG (SWG) is also currently receiving complaints from customers demanding an immediate reduction in the price of natural gas. After all, according to the criticism, SWG always emphasises that the gas price is linked to the oil price. However, this claim overlooks the fact that the price of gas does indeed follow the price of oil, albeit with a time lag.
SWG company spokesperson Ina Weller: "We can well understand our customers who would like to see a rapid reduction in the price of gas. We would like nothing better at the moment than to announce an immediate price reduction."
Oil price indexation
The oil price indexation is primarily regulated in international supply contracts between foreign gas producers and German importers. It also guarantees producers a competitive price for natural gas in the long term, as its price is linked to the key currency for energy, the oil price. Even without a contractually agreed oil price link, the price of gas will always be based on the price of oil in the medium term, as gas and oil are interchangeable. This can be observed particularly well in the UK and the USA, where there is no oil price link: Here, too, the price of natural gas is orientated to the price of oil.
Mechanism of oil price indexation
SWG's supply contracts with upstream supplier E.ON Ruhrgas AG also include an oil price link in accordance with the so-called 6/1/3 rule. This means that in order to determine the development of the natural gas purchase price, the average of the oil prices for 6 months is used in a price change formula, with a time lag of 1 month. The calculated price is then valid for 3 months. SWG's natural gas purchase prices therefore change quarterly.
Due to this averaging and the time lag of one month, the oil price link has a delayed effect on the gas price. SWG's gas customers benefited from this in spring and summer 2008: The gas price remained stable, while oil prices rose sharply.
If oil prices continue to fall, gas prices will also fall
The falling oil prices in the course of the financial crisis are reflected in the natural gas purchase prices via the 6/1/3 rule described above. At present, however, the high prices from the phase before the financial crisis continue to have an effect due to averaging. However, if prices continue to fall, gas prices will naturally follow suit. This is because the oil price indexation works in both directions - upwards and downwards - with the corresponding time lag. In 2007, for example, SWG lowered prices twice due to the oil price link: on 1 January 2007 (net price reduction) and on 1 April 2007.