Europe is bracing for energy shortages as freezing weather sets in, boosting demand and sending prices surging at a time supply just can’t keep up.
Temperatures are forecast to fall below zero degrees Celsius in several European capitals this week, straining electricity grids already coping with low wind speeds and severe nuclear outages in France. To make matters worse, Russia intends to keep natural gas flows through a major transit route to Germany limited on Monday after capping supplies over the weekend.
Energy prices have spiraled out of control this year, with European gas prices surging some 600 percent. Prices surged as much as 8.8 percent early Monday, while short-term electricity prices jumped in auctions Sunday. In France, power for delivery on Monday rallied to the highest level since a rare spike in 2009, while Germany prices were the third highest on record.
Rising prices have fueled inflation, a headache for policy makers already contending with the spread of the Omicron variant just before the holiday season. Geopolitical tensions between Russia and Ukraine could also make things worse, with a potential invasion likely to send prices even higher.
Jeremy Weir, chief executive officer of commodities trader Trafigura Group, last month warned that Europe could experience rolling blackouts in case of a cold winter. And that was before Electricite de France SA said it was halting reactors accounting for 10 percent of the nation’s nuclear capacity, leaving the region at the mercy of weather at the height of winter in January and February.
Benchmark Dutch gas prices jumped to almost 149 euros a megawatt-hour, the highest for a most-active contract since a 40 percent surge on October 6. Traders are also on edge as auctions for pipeline capacity next month will provide an indication as to whether Gazprom PJSC intends to boost supplies in January.
With nuclear outages biting, electricity producers will have to use more gas to keep the lights on. But Russia plans to keep flows into Germany via the key Yamal-Europe pipeline capped, potentially forcing Europe to reply on its already depleted gas inventories. Storage sites are only 60 percent filled, a record low for this time of year.
Only 4 percent of capacity was allocated for Monday to send gas through Germany’s Mallnow station, where the pipeline crossing Belarus and Poland terminates. That compares with about 35 percent of capacity that Russia has booked for most days this month.
And there’s no relief in sight. Temperatures are expected to remain below normal levels in the UK, Denmark and northern Germany next week. While traders expect more liquefied natural gas to come to rescue due to lower demand in Asia, cargo diversions will take some time and increased arrivals at European ports are unlikely to come before January.
