Freezing temperatures are finally arriving across Europe, sending energy prices soaring once again amid fears of power shortages. Gas and electricity costs continue to break records as energy output is curtailed and demand remains on the rise. Further, gas shipments from Russia were recently curbed, weakening flows to an already tight natural gas market.
To counter a natural gas supply and demand imbalance, coal power was increasingly utilized to avoid blackouts, despite consistent climate pledges across the EU. Coal could remain in high demand this winter to combat skyrocketing prices in natural gas markets and increasingly volatile renewable energy output.
Related ETF and Stocks: United States Natural Gas Fund, LP (UNG), NACCO Industries, Inc. (NC), Peabody Energy Corporation (BTU), CONSOL Energy Inc. (CEIX)
Winter Weather Drives Severe Energy Crunch Across Europe
With freezing temperatures finally setting in across Europe, demand for gas and electricity has surged. Energy consumers are facing severely elevated costs while natural gas stockpiles remain critically low, stoking fears of energy shortages around the European Union.
German power for next year, the European benchmark for energy costs, has drastically risen over the last two months. European Energy Exchange (EEX) data, highlighted by Bloomberg, shows that the benchmark has jumped to an all-time high of 335 euros per megawatt-hour, nearly a six-fold increase year-to-date.
Natural gas futures made the most significant move on Tuesday, rising as much as 28% after Russia curbed gas flows to Europe and France. Reuters notes that a pipeline that brings Russian gas to Germany switched to flow eastward, which industry experts hypothesize could be due to rising political tensions with Ukraine. Similarly, delays to the certification of another major pipeline, Nord Stream 2, has also put upward pressure on natural gas prices across Europe.
While the reasoning for a reversal in Russian gas flows is largely speculative amongst traders right now, industry analysts are certainly at a consensus that the decision appears bullish for natural gas prices.
MRP has recently highlighted natural gas markets this year, noting that prices could have further room to run as European inventories remained concerningly thin heading into the winter months. While the winter has been considerably mild for the US thus far, leading to tamer natural gas prices, the same cannot be said for Europe.
According to Bloomberg, power shortages are rising around the region as winter temperatures begin to strain electricity grids that are already coping with low wind speeds and significant nuclear outages in France. Jeremy Weir, CEO of Trafigura Group, warned last month that Europe could experience rolling blackouts if this winter season is particularly cold, just as France halted 10% of the nation’s nuclear power capacity. Now, that number is expected to rise to 30% by the beginning on January.
As MRP has previously reported, France and many other European nations are largely pivoting to embrace nuclear energy once again, but relief will not come soon enough to stave off short-term energy woes.
The New York Times notes that traders doubt Europe has enough fuel stored to last a cold winter without disruption. Henning Gloystien, director for energy and climate at Eurasia Group, writes that even though blackouts are worst-case scenario…
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