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French energy regulator warns of significant rise in fourth quarter natural gas prices

FILE PHOTO: A logo of French energy company Engie is seen at an office building in La Defense business district in Courbevoie near Paris

PARIS (Reuters) - Natural gas prices in Europe are likely to rise significantly in the last quarter of 2020 after a coronavirus-driven slump, which would cause a significant increase in regulated tariffs, the French Energy Regulatory Commission (CRE) warned on Friday.

The commission therefore recommended that the government "smooth over" tariff evolutions over the coming months.

In its analysis of utility Engie's <ENGIE.PA> costs, which have to be covered by the regulated tariffs for the sale of natural gas, CRE underlined that the coronavirus crisis led to a fall in natural gas prices in Europe during the first half of the year.

The prices dropped to "a historic low point" of around 6 euros ($6.78) per megawatt hour (MWh), falling as far as 4 euros/MWh recently.

CRE stressed that the lows "increase the probability of a significant price rise in the last quarter of 2020" of around 10 euros/MWh when gas heaters are turned back on.

Using partial data and as an indication, the regulator calculated that the gas tariffs in France will increase by 0.7% by Aug. 1, then 1.7% on Sept. 1 and 4.0% on Oct. 1.

"Smoothing over the next tariff period would limit the extent of monthly changes. Given the expectations presented... this smoothing should be done by cancelling the price decrease on July 1, estimated today at -4.6%", CRE said.

If the public authorities wish to smooth the rising rates between July 2020 and the end of winter 2020-2021, this mechanism will have to ensure good coverage of Engie's supply costs over the respective period, like last year, CRE added.

(Reporting by Forrest Crellin; editing by Emelia Sithole-Matarise)