Why Europe is facing soaring gas prices, Auto News, ET Auto

And imports of liquid natural gas (LNG) from Asia are failing to fill the void because demand is also high there.


Gas and electricity prices are soaring in Europe as winter approaches, forcing governments to react. Here’s what’s behind the winter increase:

European benchmark prices for natural gas have quadrupled in just six months, as the International Energy Agency (IEA) has identified a number of factors behind the surge. On the demand side, the global economic rebound from coronavirus shutdowns has increased gas consumption, while inventories have remained low after a long, cold winter that prompted Europeans to heat their homes more.

Supply has been affected by lack of maintenance during the pandemic and aging infrastructure. Pipeline deliveries from Russia were slowed by engineering work and a fire in August. And imports of liquid natural gas (LNG) from Asia are failing to fill the void because demand is also high there.

Consumers as well as businesses have been affected by the price spike, with rating agency Fitch warning that fertilizer manufacturers and agribusinesses are particularly at risk. The UK government said on Tuesday it would step in to pay CF Fertilizers to restart two factories that had become unprofitable because their by-products include carbon dioxide vital to the wider food industry and other applications.

Records are also falling in electricity markets, with 2022 contracts reaching 109 euros ($ 128, £ 97) per megawatt hour in France, 112 in Britain and 105 in Germany. “One-year futures base electricity prices have nearly doubled in most major electricity markets and are now at their highest level ever,” Barclays Bank analysts wrote in a note. of research.

They highlight two reasons for this increase: an 80% increase this year in the prices of carbon emission permits as the European Union increases its climate ambitions for 2030, and the knock-on effects of coal and gas. more expensive used to generate electricity.

“Gas prices could remain high until the end of the winter heating season, given low levels of natural gas in European storage,” Fitch analysts wrote in a note released Wednesday.

And the IEA warned that “the European gas market may well face further stress tests due to unplanned outages and severe cold spells, especially if they occur late in winter.”

The Paris-based body on Tuesday urged Russia to pump more gas to Europe, as Moscow faces charges that it is withholding until a new pipeline that divides to Germany receives the green light from regulators to start working.

US Energy Secretary Jennifer Granholm on Wednesday attacked “players who could manipulate the bid to take advantage of it,” while refraining from naming Russia.

While London has stepped in to support CF Fertilizers, several other countries have stepped in as well. In Spain, a special electricity tax will be lowered for businesses and consumers, while France will issue an energy coupon of 100 euros to nearly six million less well-off households.

Portugal intervened on electricity prices and Italy is considering a similar approach. But while the European Commission says it is in talks with member states, there has been no action from Brussels so far.

Energy prices are rising in the United States, where some sectors are nervous despite the protective measure offered by domestic shale gas production. The Industrial Energy Consumers of America group of companies has called on the government to limit LNG exports to keep the country’s reserves full.

Pressure on gas is also weaker in Asia, although Barclays predicted that “LNG demand is expected to remain strong in Asia ahead of the Beijing Winter Olympics” in February, which will likely keep European prices higher. as a ripple effect.

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