European energy prices are rising as a warm summer boosts demand, while natural gas supplies from Russia remain tight, Bloomberg reports. The focus is also shifting to how the region will withstand winter demand shocks.
Coal prices soared to record highs as utilities burned more of the fuel to fill gaps left by reduced gas supplies from Moscow. Natural gas prices are swinging, rising as much as 5.1% after closing near a new record on Tuesday.
Europe is mired in an energy crisis fueled by Russia’s war in Ukraine, a climate emergency on one of its main rivers and the recovery from the global pandemic. Businesses and households are facing the worst inflation in decades and the risk of recession, while governments are scaling back their clean energy targets just to ensure there is enough fuel to see them through next winter.
Soaring energy prices mean “we’re going to see some sharp contraction in European economies,” Amrita Sen, director of research and co-founder of consultancy Energy Aspects Ltd., told Bloomberg Television on Wednesday. in London. Although many industries are cutting back on natural gas and turning to alternatives where possible, the burden of high prices is “huge,” she said.
The level of the Rhine River has fallen to historic lows amid extremely hot and dry weather, making it difficult to transport energy products, including coal. However, there may be some relief as the water at one key point is set to rise above a critical level in the coming days.
The German utility company Uniper SEwhich reported net losses of 12 billion euros on Wednesday, has previously warned that it may not have enough coal to fully operate its plants if the Rhine crisis worsens.
“In Europe, the scramble for alternatives to natural gas is keeping coal high” and gas prices above the €200 level, said Christopher Ward, senior executive at Britannia Global Markets Ltd. “Demand concerns and recession fears continue to plague the entire market.”
Relief from storage
Concerns are partly offset by warehouses across Europe continuing to replenish in line with the five-year average. European stocks are 75% full and Germany has met an interim replenishment target two weeks ahead of schedule. However, the country’s energy regulator warned that the supplies would only last two and a half months if Russia cut off the supply completely.
High imports of liquefied natural gas (LNG) into Europe are helping to fill stocks, but even that is now becoming more expensive as Asian importers buy more aggressively to meet their own demand and stockpile for the winter.
German electricity next year is hovering above €500 per megawatt hour, and prices are about six times higher than last year at this time.
Germany, Europe’s largest economy, has been one of the hardest hit by the energy crisis due to its traditionally heavy reliance on Russian supplies. The government has urged a reduction in consumption, warned of notices and this week imposed a levy on natural gas use. It is also rushing to build floating terminals to import liquefied natural gas.
The blows are constantly increasing. Uniper, which was bailed out by a government bailout last month, expects full-year earnings to be negative as the company struggles to plug supply gaps left by Russia. Trafigura Group’s Nyrstar announced this week that it will halt production at one of Europe’s largest zinc smelters following the energy crisis. Other factories that make everything from fertilizer to aluminum have also been hit.