Europe
Markets
Europe’s energy crisis goes from bad to worse as
Dutch and U.K. natural gas prices see double-digit gains
Published:
Sept. 15, 2021 at 10:01 a.m. ET
By Barbara
Kollmeyer
Fire at U.K. electricity converter station cuts power
from France
Europe’s
energy crisis deepened on Wednesday, with natural gas futures in Europe and the
U.K. soaring by double digits, while a fire at a electricity converter station
that connected France to England.
October
Title Transfer Facility (TTF) natural gas futures in the Netherlands— the
European benchmark — jumped to 72.195 euros per megawatt hour (MWh) on
Wednesday, a new record and a nearly 10% gain on the day, while U.K. natural
gas futures surged around 10% to 181.42 pence a therm, also a new high.
European
benchmark natural gas prices have soared 287% year to date, driven by a
shortage of supplies from Russia, which is using more of its own natural gas; a
lack of U.S. supply due to hurricanes disrupting refineries; a heat wave in the
U.K. and elsewhere that has disrupted wind power; and hurricanes knocking out
supplies from the U.S. Gulf of Mexico.
As some
pointed out, the crude equivalent for Dutch natural gas prices is now exceeding
the highs seen for Brent oil BRN00, +0.20% during 2008. Shortages of natural
gas across Europe have triggered sharp gains in power prices for consumers
across the continent and the U.K., as well as forcing up coal and carbon
emissions prices.
To cope
with electricity bills that have been surging in Spain since the summer, for
example, customers have been doing laundry at midnight and other nonpeak hours
and trying to trim usage overall. Under pressure to reduce those bills, the
Spanish government recently drew up a plan to raid the “extraordinary profits”
and tax cuts of the country’s energy companies, who have vowed to fight back.
Shares of
Spain’s Iberdrola IBE, -0.17%, Endesa ELE, +1.00%, Portugal’s EDP EDP, -1.55%
and were all down by 3% or more on Wednesday. The electricity sector was one of
the weakest sectors in Europe, with the Stoxx Europe 600 index SXXP, -0.88%
sliding 0.5% to 465.39.
In the
U.K., meanwhile, a major fire at a converter station in Kent on Wednesday
knocked out a high-voltage power cable that imports electricity to France.
There were fears of an extended outage of that cable, with a market price for
the U.K.’s main electricity auctions reportedly surging to a record price of
£2,500/MWh for peak demand hours on Wednesday. That is from an average £40/MWh.
The fallout
has also hit several companies, with Danish energy investor Nordstrom Invest
A/S filing for bankruptcy last week, and two U.K. energy suppliers, Pfp Energy
and Moneyplus Energy, also forced out of business.
While U.S.
natural gas prices NG00, -5.27% were also climbing on Wednesday, in part as
another storm battered the Gulf of Mexico, Europe’s crisis remains its own for
now for now, said Saxo Bank’s head of commodity strategy Ole Hansen.
“Europe
does not produce its own gas in any major volumes, hence its relying on imports
from Russia, Norway and via LNG. In addition, the green transformation and the
European Emissions Trading system has seen the continent go all in on wind and
solar,” he said in emailed comments.
The wind
literally stopped blowing this summer, with hydro generation in Southern Europe
hit by climate change-induced droughts, which required thermal power generation
to step up.
As the gap
left by reduced renewable power output was tougher to fill than expected, the European
gas market is showing signs of a “supply crunch and extreme physical tightness,
swinging from record storage surplus one year ago to record low inventories
currently as the Continent failed to attract adequate supply from abroad,” said
Hansen.
A team of
analysts at Goldman Sachs, led by Samantha Dart, said if Europe’s winter turns
out colder than expected, then the continent will likely need to compete with
Asia for liquefied natural gas (LNG) supply. “This could drive TTF and JKM
(Japan-Korea-Market prices for LNG) higher, similar to the JKM rally seen in
Jan21,” said Dart and the team.
GOLDMAN
SACHS
If Europe
and Asia both face colder-than-expected winters, the only way to balance the
market would be a “significant further rally in European gas and power prices,
reflective of the need to destroy demand, with curtailed power demand in the
industrial sector through blackouts.”
Goldman
“strongly” recommended that European consumers in particular “hedge their gas
exposure further out the curve, where TTF appears especially underpriced
relative to coal.”
The energy
crisis comes as governments on the continent and in the U.K. try to get
countries get back on their feet amid the continuing coronavirus pandemic.
European Central Bank President Christine Lagarde told Bloomberg News on
Wednesday that the continent was recovering from the pandemic faster than the
central bank had expected.
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