Update Sept. 28 Additional commentary in Footnote at end
Europeans are going to get a strong dose of energy cuts Greta has long called for since starting her Fridays for the Future. Shortages of fossil fuels are in the outlook and already reflected in skyrocketing prices. Tyler Durden explains at zerohedge All Hell Is Breaking Loose In Energy Markets. Excerpts in italics with my bolds.
By now readers are well aware that Europe is suffering from a historic gas crisis, one which according to Rabobank is now even more extreme than the US oil price shock.
And unfortunately for Europe’s population, with every passing day – and to a lesser extent hedge funds such as Statar Capital which suffered a big loss in the past few days – it’s only getting worse. As Bloomberg’s Javier Blas notes today, both UK NBP and Dutch TTF natural gas benchmarks have closed the day at their highest ever settlement level, up ~11% on the day (to a closing price equal to more than $26 per mBtu).
Natural gas prices in Europe have surged past $25 per million British thermal unit, more than 400% higher than the 2010-2020 average, and significantly higher than in the U.S., where the commodity trades at around $5 per million Btu. In Asia, liquefied natural gas has recently changed hands at around $27 per million Btu, a seasonal record high, as China has also been hit by a widespread energy crisis (see “Millions Of Chinese Residents Lose Power After Widespread, “Unexpected” Blackouts; Power Company Warns This Is “New Normal””). Also, for those who haven’t read it yet, please check out Rabobank’s extensive recap of Europe’s energy crisis which we posted over the weekend.
Europe’s energy crisis is not contained to nat gas, and as we discussed over the weekend in another flashback to the 1970s US, UK gas station pumps are running dry in British cities on Monday with vendors rationing sales as a shortage of truckers strained supply chains to breaking point. Pumps across British cities were either closed or had signs saying fuel was unavailable on Monday, Reuters reporters said, with some limiting the amount of fuel each customer could buy.
The Petrol Retailers Association (PRA), which represents independent fuel retailers accounting for 65% of all the 8,380 UK forecourts, said members had reported that 50% to 90% of pumps were dry in some areas.
A post-Brexit shortage of truck drivers as the COVID-19 pandemic eases has sown chaos through British supply chains in everything from food to fuel, raising the specter of disruptions and price rises in the run-up to Christmas. Drivers lined up for hours to fill their cars at petrol stations that were still selling fuel, albeit often rationed. There were also calls for National Health Service (NHS) staff and other emergency workers to be given priority.
Hauliers, gas stations and retailers said there were no quick fixes as the shortfall of truck drivers – estimated to be around 100,000 – was so acute, and because transporting fuel demands additional training and licensing. “We need some calm,” Gordon Balmer, executive director of the PRA, told Reuters. “Please don’t panic buy: if people drain the network then it becomes a self-fulfilling prophecy.”
Shifting from gasoline and nat gas to oil, the near-term outlook is looking even more grim. According to Trafigura, one of the world’s largest commodity trading houses, the world faces higher oil and gas prices this winter and beyond as supply struggles to catch up with fast-rising demand.
“We’re going to see higher oil prices,” Ben Luckock, Trafigura’s co-head of oil trading said in an interview with Bloomberg.
Luckock said the market was mispricing forward oil contracts for the next couple of years because traders hadn’t yet woken up to the fact the supply-demand balance will remain tight for some time. Translation: even higher prices are coming with no easing in sight.
“I struggle to see anything but higher prices going forward in the next two years,” he said, one day after Goldman hiked its price target, now predicting that Brent would hit $90 some time in December. On Monday, Brent crude for immediate delivery surged toward $80 a barrel, setting its highest price in nearly three years.
On natural gas, he said prices could shoot up even more this winter if cold weather forces demand higher in Europe and Asia.
The bullish outlook comes as oil demand fast recovers toward its pre-pandemic level, with most traders expecting that consumption will reach the 2019 by early-to-mid 2022. As demand rebounds, supply has struggled to keep up: U.S. shale companies have kept a lid on spending, preferring to pay dividends to shareholders. With U.S. shale reacting slowly to higher prices, the OPEC+ oil cartel has been able to keep control of the market.
“The U.S. shale industry is showing very strong discipline. Oil prices are roughly double what they were a year ago and despite that we’re not seeing a huge increase in drilling,” Luckock said.
Luckock said that it was difficult to see lower natural gas prices this winter in Europe, despite the commodity trading at a record high already: “If it’s a cold winter in Europe or Asia, we have a big problem,” he said. “If it’s cold, and on top, it isn’t windy, then we have a much bigger problem. We will face shortages.”
Notably, Luckock said he was skeptical that Russia, the biggest gas supplier to Europe, was intentionally tightening the market for political gain, suggesting that Moscow was already pumping as much gas as it could right now.
“It’s easy to say that’s politically motivated, but I think it’s simpler than that: Russia is facing maintenance in many gas fields, very low domestic inventories, substantially increased flows to Turkey, and Gazprom is struggling to increase production,” he said.
Footnote: Commentary from Bloomberg Green and National Review
Ewa Krukowska at Bloomberg Green Energy Crisis Puts World’s Most Ambitious Climate Plan to Test. Excerpts in italics with my bolds.
- Soaring power and gas prices shoot up EU political agenda
- Governments across EU fear backlash over costs of green shift
Natural gas and power prices are surging to all-time highs in the 27-nation region, as the bloc’s economies rebound from the Covid-19 pandemic. The surge in demand comes amid limited gas imports from Norway and Russia, with some countries accusing Moscow of manipulating supplies. At the same time, the EU strategy to accelerate emissions cuts in every sector from transport to manufacturing and agriculture boosted demand for carbon permits, with prices more than doubling over the past two years to new records.
The green package unveiled in July aims to align the economy with a 2030 stricter binding goal of reducing emissions by at least 55% from 1990 levels. The laws need to be approved by the European Parliament and member states in the Council of the EU, with each institution entitled to amending the plan, in a process likely to take around two years.
But for Europe’s lower-income countries — as well for the continent’s energy-intensive industries — the pain of any transition will be significant, and the EU will be under pressure to help cushion the blow from the current price jump.
But European governments are limited in what they can do to tackle the power crunch — without making their climate goals even harder to reach.
“It feels unlikely that politicians will reverse track and go back to coal generation or make changes to the approach to carbon,” said John Musk, an analyst at RBC Europe Ltd. “It is hard to see what measures can be adopted to alleviate near term supply-demand constraints on gas and power. There are likely be a couple of difficult years to navigate in terms of consumer prices and there may have to be some measures to help consumers here and there.”
Andres Stuttaford adds an essay at National Review The Gathering Storm (But with Not Enough Wind): Europe’s Energy Mess Gets Worse — a Lesson the U.S. Looks Set to Ignore. Excerpts in italics with my bolds.
Instead of looking at these alternative approaches, the EU, the U.K., and, soon enough, the U.S., seem set on what is looking more and more like a headlong rush into disaster.
To understand why this might be, it is important to understand that for many climate warriors a “bloody hard” transition is a feature, not a bug.
I wrote about this a week or so back:
Concentrating on resilience and adaptation do not follow the millenarian narrative that is an unmistakable subtext of the message now being sent out by many climate warriors, whether inside government, linked to government, or outside it. Underpinned by the expectation of apocalypse, this narrative, which has repeatedly demonstrated its dangerously persuasive power over the centuries, is based on the thought that a wicked humanity faces punishment and must, with the assistance of a morally superior, enlightened vanguard, be made to change its dreadful (often self-indulgent) behavior. Adaptation and resilience, by contrast, offer the prospect that our species will muddle on through, living pretty much as it has been doing, except even better, and without donning the hairshirt integral to so many climate warriors’ faith. Theirs has the characteristics of a religion, and there is little that is original about it. Pointless asceticism comes with the territory.
Questioning whether those setting the climate agenda are going about things the right way is not a matter of climate “denial,” but simple common sense. It is not, however, a conversation that the climate establishment wants to have. Fundamentalists are like that.
They may not want to have that conversation, but, as winter approaches, the growing crisis in Europe suggests that it is a conversation that may be difficult to avoid.