Thursday, September 29

Natural gas breaks all price records: why it is catastrophic news that puts industry in Europe at risk


The price of natural gas has skyrocketed, reaching up to 180 euros per megawatt hour (MWh), according to the TTF index, the most used reference in the European market. This is the historical record and completely far from what we have had throughout the year, trading below € 30 / MWh. This is undoubtedly bad news for the European energy market, which at many times relies on natural gas to meet high demand, which due to the marginalist price system causes the price of electricity to reach unprecedented figures.

The Nord Stream 2 gas pipeline is still pending approval and this week it became known that the Russian company Gazprom has stopped reserving supplies for Europe through its Ukraine gas pipeline. This has caused the price to skyrocket once again, setting off all the alarms. Europe is experiencing one of the biggest energy crises in its history and natural gas is at the center of the debate.

The natural gas crisis does not seem to have a short-term solution

If the price of energy continues to rise, there will come a point where there are companies that will lose money if they produce and it will be more profitable to stop machines. Experts consulted by The country They pointed out in early November that the risk of supply disruption was minimal, but the situation has since changed.

The first weeks of November even moderated and after breaking the barrier of 100 euros per MWh, then it fell in price. But since the beginning of December it has progressively climbed again, reaching € 180 / MWh yesterday. A increase of more than 20% from one day to the next. Today this rise has moderated slightly, but it is still above € 170 / MWh.

Gas Ttf

The rise in gas at the end of 2021 is at the center of the serious energy crisis that Europe is experiencing.

Katja Yafimava, researcher at the Oxford Institute for Energy Studies, assures Bloomberg that Gazprom’s refusal to reserve supplies has caused a pump in the opposite direction, from Germany to Poland, a change that also reflects lower consumption due to the holidays. Even so, on these dates the cold waves arrive and Europe’s reserves are practically depleted. A critical situation that does not look like it will help lower the cost of gas.

Such is the price of gas in Europe that even from Asia they are seeing that it is more cost effective to send natural gas ships to Europe rather than sell them on your continent. According they point from the Platts company, energy market analysts, the difference between the European gas price and the Asian price is the widest ever recorded.

These gas prices are clearly being reflected in the price of electricity. Spain has exceeded € 300 / MWh this week, but the ceiling could be much higher. In the case of France and after the closure of several nuclear power plants, the future they aim that the price of energy on the French market could reach € 1,000 / MWh by the end of January.

Europe has multiple sources of energy to supply itself, but depends on all of them when there are peaks in demand. At those times it is where the most expensive type of energy, usually gas, is the one that sets the price of the entire market. The problem is that hardly any gas is produced in Europe, which leaves us in the hands of external agents such as Russia. In the long term, Europe’s goal is to depend on renewable energy, but this is a far-off prospect for the moment.

The fear of an increasingly present industrial stop

Given the high cost of energy, the Government has approved an extension of the VAT reduction and the Special Tax on Electricity. These are consumer-focused measures, but there are also other measures for companies that see that their bill has skyrocketed.

Customers will be allowed to suspend or break their contracts until March 31, 2022, as was done in the worst months of the pandemic. That is to say, The Government will allow the industry to suspend its gas contracts for 3 months to avoid production stoppages, anticipating the fact that multiple companies may be in that position.

Next Thursday, December 23 the barrier of € 400 / MWh will be broken for the first time in Spain for the wholesale price for more than half the day, the average price being around € 383 / MWh.

In both France and Germany, some industries they are already making stops to avoid that the high price of energy affects its viability. An energy crisis that has gas at the center of the problems and where at the moment there is no solution on the table.

Image | Samuel Sianipar





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