Natural gas prices in the UK and the continent of Europe hit record highs due to tight supply ahead of winter, causing serious economic damage to industry and concerns about weather shortages.
UK previous day prices rose 7% on Tuesday to over £ 1.65 per therm, almost triple the level at the beginning of the year and rose 70% in early August alone. Since gas is the key to power generation, it also pushes record electricity prices.
But what caused the gas crunch before winter heating demand began in earnest? How does it affect the home?
What is causing supply concerns?
Concerns over supply shortages began in the protracted cold winters that depleted natural gas storage. This is usually replenished in the summer when the demand for heating evaporates significantly.
However, storage filling is not occurring at the pace traders wanted in 2021. Russia Sending Less gas To Europe because of intense debate in the industry. These range from the need for Russia to replenish its own storage to suspicions that it is trying to pressure European governments, including Germany, to approve highly controversial startups. Nord Stream 2 Gas pipeline.
Europe has also phased out coal plants in recent years, limiting the opportunity to switch fuels when prices rise. Record carbon prices also make fuel swaps less attractive, as coal emits more carbon dioxide when burned.
The UK and parts of the European continent are increasingly dependent on wind turbines for power generation, but the weather in recent weeks has significantly reduced the contribution of wind power to the grid. It is backfilled primarily by natural gas, boosting fuel demand.
James Hackstep of S & P Global Platts Analytics said:
Who pays the invoice?
Everyone soon. However, the increase in natural gas bills is not as immediately visible to consumers as the rise in pump prices when oil prices soar.
Large industrial users quickly experience high energy costs, but many users pre-hedge expected consumption to fix prices.
Many households are initially protected because of the fixed rates, especially in the UK. However, regulator Ofgem has already raised the so-called price cap by more than 12% in August to explain the strength of wholesale prices. That’s because wholesale costs make up only about 40 percent of the average utility bill.
If UK gas prices stay the same or higher during the winter, Ofgem has little choice but to raise the energy price cap again.
In Spain, where more households are exposed to variable rates rather than fixed rates, the government this week Announced plans to regain approximately € 3 billion of “excess profit” from utilities. Madrid said it would cut the sales tax on electricity by € 1.4 billion by the end of the year, while using these funds to reduce billing.
How exposed is the UK?
The UK is definitely more exposed than any other Europe. The country has won praise for its significant reductions in emissions over the last decade, achieved by increasing its renewable energy capacity and replacing coal with natural gas, especially during low wind speeds. I did.
The UK also effectively operates a “just-in-time” approach to gas supply. More domestic production than EU countries, but much less Storage capacity..
The British government states that the country has a variety of sources. However, it acknowledges that this means that imports, especially liquefied natural gas (LNG) cargo, must compete in the global market.
Demand for LNG is becoming stronger and more competitive in Asia. Pipeline supply from Norway to the United Kingdom and other Europe is considered reliable, but the United Kingdom is increasingly dependent on exports from the EU pipeline linked to Russia.
Some are concerned that Europe may pinch and prioritize its supply over Britain’s needs after Brexit. Niall Trimble of the consultancy Energy Contract Company said:
“It’s not unthinkable that problems can occur in very cold winters.”
Will prices continue to rise?
necessarily. Many things can weaken a rally.
The most important point is the weather. The mild winters of the Northern Hemisphere can greatly help calm the market. Wind power pickups can also help reduce the amount of gas directed to power generation.
Traders are also monitoring the German approval of the Nord Stream 2 pipeline from Russia. Some wonder how much additional gas will be brought to Europe this year, but there are concerns that delays in launching the line could make things worse.
Gazprom, Russia’s state-owned exclusive pipeline exporter, meets all long-term contracts. However, it does not make additional supplies available via Ukraine where Nord Stream 2 is designed. bypass..
S & P Global Platts Analytics has identified one way to ease the tightness of the gas market. It is to switch from gas to petroleum or other hydrocarbon liquids, if possible, either in the manufacturing process or in a power plant that can burn petroleum. But this is worse for the environment.
The switch from gas to oil is “in Asia, [LNG price] The S & P Global Platts hack step states: “But it is now also seen in Europe.”
A few years ago, gas was considered a “bridge” fuel between fossil fuels and renewable energies. But it is being increasingly criticized by activists and investors alike.
The industry says this is going in the wrong direction, limiting new supplies that could actually help reduce emissions by replacing coal, which produces about twice as much CO2 when burned. Insist. But observers also say that even in countries like the United Kingdom, there is still nowhere close to enough renewable capacity to keep electricity without gas as part of the energy mix.
Andy Karitz, a former Royal Dutch Shell executive who is the Executive Director of the International Gas Union, said:
“As a result, if there is not enough gas to replace coal, the climate curve will slow down,” he said. “If this continues, the consequences will be felt either as affordable energy or energy insecurity in the form of lack of availability.”
Why Europe fears a gas crunch even before winter demand begins Source link Why Europe fears a gas crunch even before winter demand begins