America And Europe Face Bleak Winter As Energy Prices Surge To Record Levels
Surging Energy Prices Close U.K. Factories, Another Bottleneck In A World Full Of Them. America And Europe Face Bleak Winter As Energy Prices Surge To Record Levels
U.S. fertilizer company halts production at two British plants, citing high natural-gas costs.
Soaring natural-gas prices in Britain have prompted U.S. fertilizer maker CF Industries Holdings Inc. to close two U.K. plants, in a sign that Europe’s energy crunch is affecting industry as the economy struggles with several other disruptions amid the recovery from the pandemic.
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On Wednesday, the price for Europe’s regional gas benchmark, the TTF month-ahead contract, closed at a record high of $24.2 per metric million British thermal units, according to S&P Global Platts.
Natural-gas prices in Europe have been boosted by a range of factors including the pandemic recovery, a lack of fuel in storage, strong demand in Asia and recent still weather conditions sapping wind power in the North Sea.
European nations have turned away from thermal coal and nuclear power, leaving them with fewer alternatives to back up power sources. Almost 40% of European coal generation capacity has been retired since 2016, according to S&P Global Platts.
CF Industries, which uses hydrogen and nitrogen to make fertilizers and other products, said late Wednesday that it is halting operations at two U.K. manufacturing complexes due to high natural-gas prices. The Deerfield, Ill.-based company said it doesn’t know when production will resume.
The swift economic rebound from Covid-19 has caused a range of global bottlenecks, leading to higher inflation. There has been a shortage of some goods, from computer chips to cardboard packaging, port congestion is delaying shipments and raising costs, commodity prices are higher, and some industries are struggling to find enough workers.
Higher prices for oil and gas have been particularly hard on energy-intensive manufacturing.
Make UK, a manufacturing trade group, said that some steel producers have halted production for periods of the day due to the high electricity prices. A survey by the group found two-thirds of British manufacturers were feeling the impact of energy price rises.
“At a time that manufacturers are meant to be coming out of the Covid downturn after a significant period of low production and slashed order books, companies are now struggling to cope with unprecedented energy costs which risk putting the brakes on any recovery,” said Verity Davidge, Make UK director of policy.
The U.K.’s power supply was sapped further when a fire knocked out a key power cable linking Britain with France. National Grid PLC, which runs the U.K.‘s energy network, said the fire on Wednesday could render the undersea cable offline for over a week.
Energy prices have risen sharply in Germany since the beginning of the pandemic. The price of power in Europe’s largest economy has risen from €36 a megawatt-hour in early February 2021, equivalent to around $43, to €164 on Sep. 14, according to ICIS, a provider of data on chemicals and energy.
German industry is predicting further rises. Earlier this month, Der Mittelstand, a lobby group for Germany’s largely family-own midsize companies, published a survey of its members in which 97% said they expected energy prices to continue rising over the next five years.
The group warned that energy prices, which are the highest in Europe, threatened many of its midsize industrial companies.
“If the trend of exploding electricity prices continues we are in danger of seeing a gradual exodus of energy-intensive production,” Markus Jeger, the group’s managing director, said when the survey was published on Sept. 1.
Energy Crunch Hits Pig Slaughter And Fertilizers In Risk To Food
Europe’s energy crisis is spreading to the fertilizer and meat industries, risking tighter food supplies and even higher prices.
Major fertilizer producers Yara International ASA and CF Industries Holdings Inc. said soaring energy costs are forcing them to halt some output of nutrients crucial for growing crops. The shutdowns also risk hitting other parts of the food supply chain by crimping supplies of carbon dioxide, which is used in stunning animals for slaughter and food packaging that boosts shelf life.
It’s the latest threat to abattoirs, where labor shortages have caused a backlog of pigs on farms, and comes as global food prices are near a decade-high. The British Meat Processors Association warned that CO2 supplies could run out within two weeks, forcing slaughterhouses to close just as pig producers are already facing the imminent prospect of culling animals.
“It’s quite alarming,” said Nick Allen, head of the meat association. “We’re talking between days and weeks from this really hitting hard, unless somewhere in the world — ideally here in Europe — there are supplies of this that can replace that amount of CO2 very quickly.”
Carbon dioxide — a byproduct of fertilizer production — is also used in packaging products such as meat and vegetables. Beef and lamb would be less affected by a CO2 shortage, but could lose five days of shelf life due to the packaging issues, the BMPA said. Soft-drink makers are also monitoring the CO2 situation and looking at alternative sources, the British Soft Drinks Association said.
U.K. government officials are in talks with the meat sector about the CO2 issue, according to a person familiar with the matter, who asked not to be identified.
The halted production in the fertilizer sector shows the impact exorbitant energy prices are having on U.K. energy intensive industries, the Energy Intensive Users Group said. It urged the U.K. to take immediate steps to keep British industry competitive as energy costs rise.
Earlier this week, CF Industries said it’s halting two U.K. plants due to soaring energy costs. On Friday, Norwegian fertilizer maker Yara on Friday said that it will by next week have curtailed about 40% of its European ammonia output capacity as record-high gas prices are hurting its production.
Yara trades about one-third of the world’s ammonia, which is used in fertilizers, but also relied on in industries such as automotives, textiles, healthcare and cosmetics. The company, which said it will curb output at a number of plants, produces ammonia in Europe at sites in the Netherlands, Germany, Norway, Italy, France, U.K. and Belgium.
Fertilizer prices jumped in the past year as a crop rally helped farmers boost purchases. They’ve been further supported after Hurricane Ida struck the heart of the U.S. fertilizer industry and Storm Nicholas threatened more damage in the Gulf of Mexico.
Higher nutrient costs risk exacerbating global food inflation at a time when hunger is on the rise, particularly in poorer nations.
Europe Faces Bleak Winter Energy Crisis Years In The Making
Europe is bracing for a tough winter as an energy crisis that’s been years in the making leaves the continent relying on the vagaries of the weather.
Faced with surging gas and electricity prices, countries from the U.K. to Germany will need to count on mild temperatures to get through the heating season. Europe is short of gas and coal and if the wind doesn’t blow, the worst-case scenario could play out: widespread blackouts that force businesses and factories to shut.
The unprecedented energy crunch has been brewing for years, with Europe growing increasingly dependent on intermittent sources of energy such as wind and solar while investments in fossil fuels declined. Environmental policy has also pushed some countries to shut their coal and nuclear fleets, reducing the number of power plants that could serve as back-up in times of shortages.
“It could get very ugly unless we act quickly to try to fill every inch of storage,” said Marco Alvera, chief executive officer of Italian energy infrastructure company Snam SpA. “You can survive a week without electricity, but you can’t survive without gas.”
Energy demand is rising from the U.S. to Europe and Asia as economies recover from the global pandemic, boosting industrial activity and fueling concerns about inflation. Prices are so high in Europe that two major fertilizer producers announced they were shutting plants or curtailing production in the region.
And it’s not just businesses. Governments are also concerned about the blow to households already contending with higher costs of everything from food to transport. As power and gas prices break records day after day, Spain, Italy, Greece and France are all stepping in to protect consumers from inflation.
“It will be expensive for consumers, it will be expensive for big energy users,” Dermot Nolan, a former chief executive officer of U.K. energy regulator Ofgem, said in a Bloomberg TV interview. “Electricity and gas prices are going to be higher at home than everybody would want and they are going to be higher than they have been for about 12 years.”
Europe’s gas prices have more than tripled this year as top supplier Russia has been curbing the additional deliveries the continent needs to refill its depleted storage sites after a cold winter last year.
It’s been hard to get hold of alternative supplies, with North Sea fields undergoing heavy maintenance after pandemic-induced delays, and Asia scooping up cargoes of liquefied natural gas to meet rising demand there.
Higher gas prices boosted the cost of producing electricity as renewables faltered. Low wind speeds forced European utilities to burn expensive coal, depleting stockpiles of the dirtiest of fossil fuels. Energy policy also played a role, with the cost of polluting in the European Union surging more than 80% this year.
“Gas supply is short, coal supply is short and renewables aren’t going great, so we are now in this crazy situation,” said Dale Hazelton, head of thermal coal at Wood Mackenzie Ltd. “Coal companies just don’t have supply available, they can’t get the equipment, the manufacturers are backed up and they don’t really want to invest.”
European gas inventories are at their lowest level in more than a decade for this time of year. Gazprom PJSC’s CEO Alexey Miller said Europe will enter the winter in about a month without fully replenishing its buffer stockpiles. The Russian gas giant has been pushing to start its controversial Nord Stream 2 pipeline.
Europe now needs favorable weather. While forecasters say temperatures are unlikely to plunge below normal next month, expectations can always change. Similar weather forecasts did not materialize last year, resulting in a bitter temperatures that sent LNG prices in Asia to a record in January.
“It may happen again,” said Ogan Kose, a managing director at Accenture. “If we end up having a very cold winter in Asia as well as in Europe, then we may end up seeing a ridiculous spike in gas prices.”
In 2018, a deep freeze that became known as the Beast from the East took energy traders by surprise. This year there’s also a chance that a La Nina weather pattern would develop again. While the phenomenon can bring warm weather to Europe, it tends to send temperatures plummeting in Asia.
The U.S. Climate Prediction Center said there’s a 66% chance that a La Nina pattern will return some time from November to January. That could exacerbate the fight for LNG cargoes, as buyers from Japan to India start panic buying due to fears of competition with Europe.
“Unfortunately, the way the weather works, when it’s cold, it is cold: it’s cold for the U.S., it’s cold for Europe and then it gets cold for Asia,” said Snam’s Alvera, who is betting on hydrogen as the future for green energy markets.
Europe will need to curtail demand if the winter is cold, Goldman Sachs Group Inc. said, predicting the region will face blackouts. There are already signs of stress, with CF Industries Holdings Inc. shutting two fertilizer plants in the U.K. and Yara International ASA will have curtailed its ammonia production capacity by 40% by next week.
Shutdowns also risk hitting the food supply chain, which uses a byproduct of fertilizer production in everything from meat processing to beer. The sugar and starch industries are also affected, with France’s Tereos SCA and Roquette Freres SA warning of higher energy costs.
And it doesn’t stop there. Europe top copper producer Aurubis AG said higher prices will continue to squeeze margins through the rest of the year. Even chemicals giant BASF SE, which produces most of its power, said it has been unable to fully swerve the impact of record-breaking electricity prices.
Supplies are unlikely to improve significantly any time soon. Russia is facing an energy crunch of its own and Gazprom is directing its additional production to domestic inventories. Prices could stay high even if Europe ends up with a mild winter, said Fabian Ronningen, an analyst at energy consultant Rystad Energy AS.
“With natural gas prices already hitting record highs in Europe ahead of rising winter demand, prices could move even higher in the coming months,” said Stacey Morris, director of research at index provider Alerian in Dallas. “There is a potential it can get worse.”
Energy Price Crunch Pushes Investors In Europe To Bet On Inflation
Short-term market gauges of inflation expectations signal consumer prices to keep climbing.
Record-breaking energy prices are driving bond investors to bet on a jump in eurozone inflation in the coming months, turning the trade bloc’s narrative of superlow price growth on its head, at least temporarily.
A key market-based measure of investors’ inflation expectations, a traded instrument known as a forward inflation swap, showed price rises peaking at an annual rate of 4.1% in November, nearly double the level in July and the most since 2008.
The 2-year German bund break-even rate, a proxy for market expectations of inflation in the trade bloc’s largest economy in 2023, reached the highest point since at least 2012 on Friday, according to data from Tradeweb.
The rise in investors’ fears about inflation in recent weeks is in contrast to the U.S. where a similar gauge has been relatively stable. Inflation in the U.S. has also risen but a data release on Wednesday showed that consumer price rises have begun to ease slightly.
This marks a nascent shift in the European Union’s long history of persistently low inflation. Consumer prices in the trade bloc rose by an annual rate of 3% in August, the highest level in a decade and above the European Central Bank’s 2% target. Investors are split about whether this uptick is temporary or longer-term, with the surge in energy prices adding fuel to the debate.
“I don’t think inflation is going to end up being a problem in the long run, but it also may not be as temporary as we thought,” said Jorge Garayo, a fixed-income and inflation strategist at Société Générale.
Natural-gas prices hit records in Europe in recent days from a combination of greater demand from the pandemic recovery and lower stores of fuel in tanks. Unusually calm and dry weather further boosted demand as wind turbines stopped spinning and hydroelectric reservoirs ran dry.
Electricity prices more than doubled in the U.K. in September at their peak and also soared in Germany, France and the Netherlands.
The spike prompted U.S. fertilizer maker CF Industries Holdings Inc. to close two U.K. plants this week.
“The rise in energy prices is so bad that consumers are losing purchasing power in Europe,” said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB. “We’ll have high prices through the winter and then things are most likely going to start to normalize on the other side. But some elements may be more lasting than others, there are definitely uncertainties.”
A doubling of energy prices in Europe plus the U.K. would cost consumers an extra 128 billion euros a year, equivalent to $150.6 billion, according to research by SEB. Energy makes up 9.5% of the basket of goods and services in a key eurozone inflation measure.
ECB executive board member Isabel Schnabel said earlier this week that eurozone inflation is likely to continue to rise through to the end of the year and then ease—and that the central bank isn’t going to move to dampen it.
“A premature monetary policy tightening in response to a temporary rise in inflation would choke the recovery,” she said in a speech on Monday.
Expectations for longer-term inflation in Europe, as seen in the 10-year German bund break-even rate, have been on the rise but peaked at 1.76% this week. This is still below the ECB’s target rate of 2%. The break-even rate is the difference between the yields of an inflation-linked bond and a comparable conventional bond.
“You might get near term impulses like energy prices but longer-term inflation expectations still look remarkably low relative to where the central bank would like them to be,” said Iain Stealey, chief investment officer for fixed income at J.P. Morgan Asset Management.
He sees more value in holding German bunds than U.S. Treasury notes or British gilts, expecting the ECB to keep monetary policy loose in a bid to try to stoke inflation going forward.
Natural-Gas Prices Surge, And Winter Is Still Months Away
Low inventories around the world have made the heating fuel more expensive than it has been in years.
Natural-gas prices have surged, prompting worries about winter shortages and forecasts for the most expensive fuel since frackers flooded the market more than a decade ago.
U.S. natural-gas futures ended Friday at $5.105 per million British thermal units. They were about half that six months ago and have leapt 17% this month.
It is supposed to be offseason for demand, and prices haven’t climbed so high since blizzards froze the Northeast in early 2014. Analysts say that it might not have to get that cold this winter for prices to reach heights unknown during the shale era, which transformed the U.S. from a gas importer to supplier to the world.
Rock-bottom gas prices have been a reliable feature of the U.S. economy since the financial crisis. Gas crashed and never recovered thanks to the abundance extracted with sideways drilling and hydraulic fracturing.
Gas is burned to generate electricity and heat homes and to make plastic, steel and fertilizer. A substantial and sustained increase in price would be felt from households to heavy industry.
Stocks have already gotten a lift from $5 gas. Energy has been the best performing sector in the S&P 500 stock index in September and one of only two that are up this month.
Monetary-policy makers often exclude energy prices when they gauge inflation because the prices move around so much. Even so, rising natural-gas prices are another factor for investors trying to tease out whether higher materials costs will fade or are here to stay.
The Federal Reserve’s monetary-policy meeting Wednesday headlines the week ahead for investors.
They will look for signs that the Fed will begin tapering bond purchases after its November meeting as well as indications that more officials believe that short-term interest rates can be raised by the end of next year.
Also in the coming week, rental-home firm Invitation Homes Inc. , apartment owner UDR Inc. and other landlords will update investors on rents, occupancy and return-to-work at a big real-estate conference.
Home builders KB Home and Lennar Corp. , which have faced higher materials costs, are part of a busy week of corporate earnings: Nike Inc. , Costco Wholesale Corp. , FedEx Corp. , Darden Restaurants Inc. and General Mills Inc. are scheduled to report and shed light on input expenses and consumer behavior.
The U.S. Energy Information Administration on Thursday will give a fresh estimate of the volume of natural gas in storage, which it last estimated to be 16.5% less than a year ago. Now is the time of year when drillers fill storage tanks and caverns to get through winter, when demand is greatest and households are most exposed to higher prices in their heating bills.
“The time to replenish stocks for the winter is rapidly running out,” said Lindsay Schneider, an analyst with consulting firm RBN Energy LLC.
Crude prices haven’t warranted much new oil drilling, which has cut down on the amount of gas produced as a byproduct, while the Appalachian firms that swing the market have given priority to profits over production growth and held back.
The number of rigs drilling for gas has been basically flat since spring despite much higher prices. When prices rose above $5 in 2014, there were more than three times as many rigs drilling gas wells as the 100 operating now, according to Baker Hughes Co.
Meanwhile, supplies have been depleted by a series of weather events. February’s freeze in Texas lifted demand while clogging wells with ice. June and July were the hottest on record and drought out West dried up hydropower production, which meant more gas than normal was needed to power air conditioners.
Late last month Hurricane Ida forced nearly all of the Gulf of Mexico’s gas output offline. More than a third of the Gulf’s gas production remained shut as of Friday, according to the Bureau of Safety and Environmental Enforcement.
Similar factors are at play in Europe, where prices have been setting records all summer. In Asia, buyers are paying more than ever for deliveries of liquefied natural gas, or LNG, to sail across the Pacific instead of to Europe.
The supply deficit is particularly acute in Europe, where inventories are thin thanks to hot weather, lackluster wind-power generation and lower imports from Russia. Goldman Sachs Group Inc. analyst Samantha Dart said that stockpiles in northwestern Europe have recently been about 24% below average.
Prices have risen so high in Europe that Ms. Dart estimates U.S. prices need to climb to $17 with no corresponding rise overseas before it becomes uneconomic to ship liquefied shale gas across the Atlantic.
She recommends that gas consumers buy out-of-the-money call options, or options to pay more than current futures prices, to guard against price increases should this winter turn out colder than normal.
Intercontinental Exchange Inc. last week boosted margin requirements for trading U.S. and European gas futures to protect against the higher prices and increased volatility.
The challenge in forecasting how high prices could rise lies in the unprecedented ties between the once isolated U.S. market and international prices, said Christopher Louney, an analyst with RBC Capital Markets.
LNG export facilities were built along the Gulf and East coasts to relieve the shale-gas glut and enable domestic producers to capture higher prices abroad. Now higher overseas prices are lifting those in the U.S.
“With a more connected gas market, are there more mouths to feed or more opportunities to find balance?” Mr. Louney said.
U.K. Minister Says ‘No Immediate Concern’ On Gas Supplies
There’s “no immediate concern” about fuel supplies running short for consumers in the U.K., Conservative MP Alok Sharma said Sunday.
Sharma, president of the COP26 climate initiative, also told Sky News that government officials “don’t see any risks going into winter” from rising gas prices about to hit British households.
“People should be confident that the supplies will be there, and that we will be protecting them in terms of price rises,” Sharma said on “Trevor Philipps on Sunday.” “But of course we’re not complacent about this.”
Top U.K. officials are in emergency talks that will continue into Monday, led by Business Secretary Kwasi Kwarteng.
Kwarteng met Saturday with senior executives from energy companies and regulators to discuss the jump in gas prices that’s threatened to shut suppliers and disrupt industries from fertilizer to meat.
He was due to meet with the U.K. energy regular Ofgem on Sunday and hold further talks with executives on Monday to plan a way forward.
Europe’s energy crisis has helped push natural gas prices to records in the U.K. The squeeze in supplies and the jump in prices has forced at least five U.K. providers to shut.
The executives assured Kwarteng there was no threat to supplies as the country moves into the colder winter months.
“Ofgem has robust measures in place to ensure that customers do not need to worry, their needs are met, and their gas and electricity supply will continue uninterrupted if a supplier fails,” the government said in a statement.
Natural gas is crucial to power generation for homes and industry and for heating in winter, with more than 22 million households connected to the grid in 2020.
Bills will go up for 11 million households from Oct. 1, pressuring an inflation rate that has unexpectedly accelerated above the Bank of England’s 2% target.
The knock-on effects are piling up. Meat processors face a shortage of carbon dioxide (C02) as fertilizer plants are taken off line in the face of soaring energy costs. The gas has multiple uses in food packaging and transport, as well as in slaughterhouses.
Nick Allen, chief executive of the British Meat Processors Association, told Times Radio on Sunday the industry faces a major crisis within two weeks and the potential for supply disruptions to interrupt delivery of goods at Christmas.
“This crisis underscores that the U.K. food supply chain is at the mercy of a small number of major fertilizer manufacturers in Northern Europe,” Allen said.
America’s Next Hot Import Might Be Record Energy Prices
Natural-gas, coal and electricity prices are all running abnormally high, far too early.
Benchmark U.S. natural-gas prices edged above $5 per million British thermal units this month, near their highest since 2014, but they are fairly tame compared with levels in Europe and Asia.
The inventory situation seems less dire at home too as underground natural-gas storage grows. The problem is that seasonal stockpiling isn’t happening quickly enough, with inventories 7.1% below their five-year average and less margin for error.
It isn’t as though the U.S. hasn’t seen natural-gas prices this high before. They occasionally touched double digits before the shale boom, but that was during the winter, when every molecule was employed to keep the lights and heat on at home. Today the rest of the world might be in dire need of that gas, as well as America’s coal, just when a crunch arrives.
The U.S. is shipping out an order of magnitude more than it did even a few years ago. During the first half of the year, the U.S. has exported roughly 10% of its natural-gas production and continues to export at near full capacity. Before opening its first export terminal in the Lower 48 states in 2016, the U.S. exported less than 1% of its natural gas.
Coal exports are running high too. The U.S. exported 52.5% more coal in the second quarter than it did a year earlier, according to S&P Global Market Intelligence.
Europe and Asia are in worse shape, with Europe’s natural-gas inventories at a record low for September. Both regions are seeing benchmark prices soaring above $20 per MMBtu as they compete to attract liquefied natural gas cargoes.
Back at home, meanwhile, there is less coal for utilities to fall back on if the winter becomes harsh.
“We’ve heard of instances in the middle of the U.S. where power plants just can’t get the coal,” said Ethan Paterno, energy-markets expert at PA Consulting.
The Energy Information Administration expects U.S. power plant coal inventories to fall to 61.3 million short tons at the end of the fourth quarter, less than half last year’s levels. That is the lowest figure since at least 1997, according to Argus Media.
Thermal coal prices have been running hot alongside natural gas, partly because of strong export demand. In particular, China has been importing a lot more coal from the U.S. after banning the commodity’s import from Australia over a diplomatic spat.
Newcastle Coal futures, among the more liquid benchmarks for thermal coal, are priced at $176 per ton, more than three times where they were a year earlier. High fuel prices are spilling into the U.S. electricity market. Analysis from EBW Analytics Group shows that electricity futures prices in all major power markets have surged over the past month.
In the New England power market, forward power prices for January-February 2022 are already trading at nearly $150 per megawatt-hour, a significant jump from the $40 to 50 per MWh average seen during the winter in recent years, according to Mr. Paterno.
The cure for tight markets, of course, is high prices that spur more supply. But that is hardly a guarantee. There are capacity constraints at coal mines and limited available transportation, according to the EIA. Meanwhile, U.S. natural-gas producers who have pledged discipline to their shareholders aren’t likely to turn on the taps quickly. There were 34% fewer active natural-gas rigs than there were a year earlier as of Sept. 10, according to Baker Hughes.
The Industrial Energy Consumers of America, a trade group representing manufacturers, sent a letter to Energy Secretary Jennifer Granholm on Friday urging immediate action to reduce LNG exports so that the U.S. can stock up on enough natural gas before winter. The group said many manufacturers can no longer compete in the market if Henry Hub prices rise above $10 per MMBtu.
It is tough to tell exactly how much of the energy-price surges are due to the market “being on edge” and how much is fundamentally justified, said Christopher Louney, commodity strategist at RBC Capital Markets.
U.K. In Deal To Restart Fertilizer Output, Easing CO2 Crunch
The U.K. government said it will provide “limited financial support” to help CF Industries Holdings Inc. restart fertilizer production hit by a gas crunch, in a bid to ease a shortage of carbon dioxide that’s crucial for the food industry.
The deal will allow CF Industries to restart operations at its plant in Billingham, northeast England, the Department for Business, Energy and Industrial Strategy said late Tuesday in a statement. The government said it will provide financial support to help cover the plant’s operating costs for three weeks, giving the CO2 market time to adapt to higher global gas prices, it said.
CF confirmed in a separate statement Tuesday that it will immediately restart the ammonia plant at its Billingham complex.
“This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption,” Business Secretary Kwasi Kwarteng said in the statement. “In our ongoing response to manage the impact of global gas price rises, we will continue to protect businesses and consumers.”
The deal will relieve the threat of further disruptions to the U.K. food industry, which was already battling to keep shelves and menus stocked due to a lack of workers. High gas prices last week forced the fertilizer maker to close two U.K. plants that make carbon dioxide as a byproduct, posing an imminent threat to the food industry, which uses the gas widely.
CO2 is used to stun pigs and chickens for slaughter, as well as in packaging to extend shelf life and the ‘dry ice’ that keeps items frozen during delivery. Online grocer Ocado Group Plc had to stop supplying frozen products and the meat sector warned that businesses could “grind to a halt” within weeks.
Fertilizer output at CF Industries’ Billingham and Ince sites provide as much as 60% of Britain’s CO2 production.
The British Poultry Council earlier welcomed news of the government’s intervention, and said it’s waiting for officials to detail how it will work in practice. It also said it is just the start of a “long road ahead,” adding that food must be treated as a national security issue.
It’s vital that production “is restarted as soon as possible, and distributed quickly to food manufacturers,” said Andrew Opie, director of food and sustainability at the British Retail Consortium.
About 80% of pigs and poultry in the U.K. are slaughtered using CO2, and there’s little scope to change the process for hogs as it’s considered the most humane method, according to the British Meat Processors Association.
Staffing shortages across U.K. slaughterhouses have already left pig farms crammed with some 100,000 extra animals, forcing farmers to resort to cattle barns to potato storage sheds to house them.
The Food and Drink Federation said if production can restart at appropriate scale before the end of the week, that should ensure pig and poultry output can continue at close to normal. There will still be some shortages, but not as bad as previously feared.
The British Soft Drinks Association has said manufacturers have just days of carbon dioxide left in reserve to produce beverages and can’t import supplies from the European Union due to Brexit. The group said on Tuesday that it’ll likely still take a few days for fertilizer plant production to resume, and combined with ongoing trucker shortages, some beverages still may not be “as abundant as usual” over the next week or so.
CO2 supplies have also been hit as Norway’s Yara International ASA curtails European capacity. CF Industries shares rose as much as 2.9% in New York, before paring some of the gain.
IEA Says Russia Could Do More To Boost Europe’s Gas Supply
The International Energy Agency called on Russia to supply more natural gas to Europe, saying the energy crunch was an opportunity for the country to show it’s a “reliable supplier.”
Russia is meeting its contractual obligations to ship gas to Europe, but its exports to the continent are still down from levels in 2019, before the global pandemic, the agency said. More gas flowing from the east would help Europe boost its stockpiles before the winter.
Gas prices in Europe are breaking records day after day as top supplier Russia keeps a cap on the additional flows needed to refill storage sites. Norway has struggled to sell more due to heavy maintenance while Asia is scooping up cargoes of liquefied natural gas, leaving Europe starved of the fuel just a few weeks before the heating season starts.
“Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season,” the IEA said in a statement on its website. “This is also an opportunity for Russia to underscore its credentials as a reliable supplier to the European market.”
Gazprom PJSC, Russia’s state-owned gas producer, didn’t immediately respond to a request for comment.
The IEA was created to defend the energy interests of rich industrialized countries. The agency is no stranger to interventions in the oil market, sometimes calling on OPEC to boost supply and on rare occasions coordinating the release of emergency fuel stockpiles. It’s less common for the Paris-based organization to get involved in gas markets.
Energy prices are soaring from the U.S. to Europe and Asia as economies rebound from the global pandemic and people return to the office. In Europe, gas supplies were already low after a long cold winter left storage sites depleted, and refilling them hasn’t been easy.
Europe is entering the winter with the lowest inventories in more than a decade, leaving the market vulnerable to price volatility when the sun isn’t shining or the wind isn’t blowing — curbing the output of renewable power.
“Going forward, the European gas market could well face further stress tests from unplanned outages and sharp cold spells, especially if they occur late in the winter,” the IEA said.
Europe’s tight natural gas supply and below-normal storage levels are exposing the risk of shortages this winter and liquidity problems, utility giants Engie SA and Uniper SE said at the Gastech conference in Dubai.
“If the level of storage is not very high and the winter is very cold we may have a shortage of gas,” said Didier Holleaux, Engie’s deputy chief executive. “Hopefully the start of the winter will not be too cold in the Northern Hemisphere. If not, we are in trouble.”
Europe is facing gas shortages, but Russia has a crunch of its own. Gazprom has boosted production this year, but it’s directing the additional output to refill depleted storage sites at home. Russia has been producing close to its maximum capacity, but its domestic needs have curbed availability to Europe, according to the Oxford Institute for Energy Studies.
“Russia is not running out of gas and its prolific gas reserves allow Russia to meet much higher overall demand, but this requires time, money, and contractual assurances of offtake,” said OIES Senior Research Fellow Vitaly Yermakov.
Some analysts have argued that Russia has capped flows to Europe as a way to get its controversial Nord Stream 2 pipeline to Germany online.
Flows through the link could improve supplies, but the start of commercial operations will depend on regulatory certification — first in Germany, then at the European Commission. That could run well into next year. U.S. sanctions have also created challenges for the project.
The IEA stressed that it’s wrong to blame the shift away from fossil fuels for the surge in gas prices. The comments came a week after Frans Timmermans, the EU’s climate chief, warned that the record spike in energy prices must not undermine the European Union’s resolve to cut emissions.
“Recent increases in global natural gas prices are the result of multiple factors, and it is inaccurate and misleading to lay the responsibility at the door of the clean energy transition,” said IEA Executive Director Fatih Birol.
Vitol Says Weather Key To Calming ‘Frantic’ Market
The world’s biggest gas traders and producers are meeting in Dubai this week for the Gastech conference — the first major in-person event for the industry since the onset of the coronavirus pandemic.
The conference, running from Sept. 21-23, is happening just as Europe faces a gas crunch, with prices spiking to record levels and analysts warning that some countries could face blackouts when winter sets in. Gas prices in Asia and Europe have surged to the equivalent of around $155 per barrel of oil.
Russel Hardy, head of the world’s biggest independent oil trader, Vitol SA, said markets are “frantic.” Traders will be watching weather patterns closely, with a warm winter in the northern hemisphere being key to whether prices fall back, he said.
Here Are The Latest Development. All Times UAE.
Gas Storage Situation is Tight, Says Vitol (5:00pm)
“Markets are frantic and panicky at the moment,” said Hardy. The weather will be “key” and it may take a warm winter in the northern hemisphere to ease prices, he said.
Europe will enter the cold season — a period traders see as starting in October or November — with gas storage about 78% full, making for a “very tight” situation, he said.
“There is not enough production in winter to cover the northern hemisphere demand, so it’s absolutely necessary to store gas,” he said. “That loss of inventory is unsettling the market.”
Prices have shot to a level that will force fertilizer, chemical and industrial businesses to look at alternatives to gas for powering their plants, according to Hardy.
He predicted that U.S. gasoline prices, now almost $3.50 a gallon, would ease in the next month.
Oil Demand May Peak by Decade End, Nigeria Says (3:35pm)
Oil demand could peak by 2030, Nigeria’s minister of state for petroleum industry, Timipre Sylva, said. Nigeria, Africa’s biggest oil producer, is still prioritizing production of oil and gas ahead of renewables, he added.
The country is producing crude below its OPEC quota, but can boost output to 1.7 million barrels a day within two months, and to 2 million a day in six months, he said.
Azerbaijan Looking at Hydrogen Exports by 2030 (3:22pm)
Azerbaijan can produce blue hydrogen and export it to Europe by pipeline by the end of this decade, Energy Minister Parviz Shahbazov said. The country is also studying producing green hydrogen using wind, he said.
In the same panel, Portuguese state secretary for energy, Joao Galamba, said the country and southern Europe have the potential for hydrogen production that can be sold to the northern parts of the continent. Current high gas prices are hurting the nation’s industries and are a signal for Portugal to speed its transition away from fossil fuels, he said.
IAE Calls On Russia To Boost Gas Supplies (3:00pm)
The International Energy Agency called on Russia to supply more natural gas to Europe, saying the energy crunch was an opportunity for the country to show it’s a “reliable supplier.”
Russia is meeting is contractual obligations to ship gas to Europe, but its exports to the continent are still down from levels in 2019, before the global pandemic, the agency said. More gas flowing from the east would help Europe boost its stockpiles before the winter.
European Utilities Say Little Can be Done In Short Term (12:30pm)
“Little can be done” about high gas prices for now as remedial steps take months to have any impact, said Didier Holleaux, executive vice president of French energy company Engie SA. “We hope the start of the winter will not be too cold in the northern hemisphere. Otherwise, we are in trouble.”
German utility Uniper SE said that credit risks in the industry are increasing, and more companies may suffer liquidity problems. There’s little sign that Russia is withholding gas supplies to western Europe, said Niek Den Hollander, Uniper’s chief commercial officer.
Russia’s Gazprom PJSC needs to replenish its own stocks for the local market, said Holleaux, which is one reason it can’t boost exports much.
Turkey Says ‘Very Tough’ As Gas Rises (12:00pm)
The rise in gas prices means this year will be “very tough” for importers and Turkey will struggle to buy as much LNG as in 2020, said Deputy Minister of Energy and Natural Resources Alparslan Bayraktar. Demand in the country will be “very high” at 60 billion cubic meters in 2021, he said.
The government is negotiating new gas contracts with Gazprom, he said, adding that they may be hybrid models with pricing linked to oil and gas indexes. It’s also talking to LNG suppliers, he said, without naming them.
Turkey plans to start producing gas from recent finds in the Black Sea in 2023, he said. Those will eventually reduce the country’s imported-gas dependency from 100% to around 75%, he said.
Qatar Says Demand For LNG Is Huge (11:50am)
“There is huge demand and we basically have a set capacity,” Qatar’s energy minister, Saad Al-Kaabi, said. The country is the world’s biggest exporter of liquefied natural gas and is investing billions of dollars to increase production, though the project will take years.
“They are queuing up for LNG,” he said. “We have huge demand from all our customers and unfortunately we can’t cater for everyone.”
LNG prices in Asia have spiked almost 50% this month to around $27 per million British thermal units. That’s the energy-equivalent of around $155 per barrel of oil.
“We don’t want these high prices,” he said. “We don’t think its good for consumer.”
Indonesia To Ramp Up Renewables (11:05am)
Indonesia plans to increase its mix of power generation from renewable energy to 70% by 2040, Energy Minister Arifin Tasrif said. Demand for gas will increase as the world transitions from diesel and coal, he said.
OPEC Says ‘Emotions’ Taking Over (11:00am)
OPEC Secretary-General Mohammad Barkindo said Europe’s gas crunch underscored that more investment in fossil fuels is needed. Governments must realize the switch to cleaner forms of energy can only happen slowly, he said.
“Emotions have overtaken industry facts,” he said on a panel with energy ministers from Qatar and the UAE. “How do we change this narrative, because we’re losing it? Civil society and climate activists have taken over the space. Activist shareholders have held the industry nearly to ransom.”
The energy ministers of Qatar, the world’s biggest exporter of LNG, and the UAE echoed those sentiments.
“There’s a euphoria around the energy transition that’s forcing companies not to invest,” Qatar’s Saad Al-Kaabi said. “People should not forget that new investments are needed to just keep output sustained. People are now realizing there’s a supply crunch and we haven’t even got into the winter season yet.”
Natural Gas ‘Pivotal’ For UAE’s Future (10:20am)
Natural gas will play a “pivotal” role driving the economy of the United Arab Emirates in the next 50 years, said Sultan Al Jaber, head of Abu Dhabi National Oil Co., which pumps almost all the country’s fossil fuels.
The UAE, particularly the capital of Abu Dhabi, wants to increase its exports of liquefied natural gas and blue hydrogen. The latter fuel, made from natural gas, is seen as pivotal to the global energy transition.
“As the world consolidates its recovery from the Covid-19 pandemic, LNG and broader gas markets globally are tightening, with demand outpacing supply,” Al Jaber said. “Longer-term, the outlook is also robust, driven particularly by markets in Asia. No other fuel source can reliably supply the baseload power to heat and cool homes, drive heavy industry and expand economies, all while keeping emissions at a minimum.”
Soaring Italian Power Prices Add Urgency To Plans To Curb Bills
Italian electricity prices traded near record highs, heightening government concerns about the impact soaring energy costs will have on consumer power bills.
The average weekly price of power soared 17% to 163 euros ($191) per megawatt-hour last week, according to data from the country’s Energy Market Manager. Power prices are expected to climb 40% in the third quarter, Ecological Transition Minister Roberto Cingolani said last week.
The government has spent 1.2 billion euros ($1.4 billion) to reduce the affect of rising prices in the second quarter. Premier Mario Draghi is ready to intervene again with another 3.5 billion euros to reduce the impact on consumers’ electricity bills.
Soaring prices in Italy are part of a rally across Europe, where German and French electricity costs for next year have surged to records. Italian year-ahead power futures traded at 116.85 euros a megawatt-hour on Tuesday, more than double the rates at the start of the year on the European Energy Exchange.
The price gains follow an increase in global demand after the pandemic, while stubbornly low European gas inventories and low coal stockpiles have pushed up fuel costs. The impact is set to grow during the looming cold season.
Italy is particularly vulnerable as it relies on imports to meet over 70% of its energy needs, with almost 40% coming from natural gas.
Energy Crunch Jeopardizes Europe’s Green Overhaul, Spain Warns
The European Union’s ambitious plan to reach climate neutrality risks falling victim to the unprecedented spike in natural gas and power prices, Spain has warned.
The government in Madrid called on the European Commission to design procedures that will allow members states to react immediately to price surges, and to adopt measures to prevent financial speculation in its carbon market. The bloc should create a central platform to buy natural gas, boosting its bargaining power, according to a Spanish document sent to Brussels.
“This situation can provoke a backlash against carbon-cutting initiatives, as already seen in France with the gilets jaunes crisis,” the Spanish government said in the document, aimed at triggering a broader debate in Europe and seen by Bloomberg News. “Carbon-cutting policies have been generally understood and accepted in Spain but may not stand a sustained period of abusive electricity prices.”
Spain and the Commission both confirmed the document’s authenticity.
Energy 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 Russia and Norway, prompting concerns about inadequate storage levels. At the same time, an EU proposal to toughen climate policies this decade spurred investors’ demand for emissions permits.
Europe Is Pumping Less Gas As Demand Rebounds, Leaving A Gap Russia Is Filling
Natural-gas supply shortfalls have led to record prices for the fuel and for electricity, stoking fears of a shortage.
A giant Dutch natural-gas field once pumped enough fuel to cover the current needs of Germany, Europe’s largest economy. Next year the field is shutting down over environmental concerns.
Natural-gas supply shortfalls have led to record prices for the fuel and electricity, stoking fears of a shortage and spotlighting European efforts to cut greenhouse-gas emissions. The conflict is one economies world-wide face as they try to adopt cleaner energy sources.
The European Union taxes carbon emissions to discourage use of fossil fuels and has promoted renewable sources of energy to replace them. Some countries have also targeted production. Denmark has committed to stop pumping oil and gas by 2050. The Netherlands is shutting down its vast field, near the town of Groningen, amid public pressure over earthquakes attributed to it.
Dutch production cutbacks have left a hole in European output just as demand returns from lockdown-induced lows. Futures contracts for gas to be delivered in the Netherlands fetched €71.69 a megawatt-hour, equivalent to just under $84 a megawatt-hour, on Wednesday.
That was close to their highest level on figures dating back to 2013 and more than six times their price from a year ago. Adding to the upward pressure, American oil-and-gas producers have held back, and droughts in places such as Brazil have curtailed hydropower, prompting a dash to burn gas.
“In hindsight it would probably be better to have more Groningen production,” said Trevor Sikorski, head of natural-gas and carbon research at Energy Aspects. “It’s…gone from being a big source of supply to being nothing in about five years. It’s gone very, very quickly.”
Europe has long struggled to meet its energy needs, even turning to the Soviet Union during the Cold War. Aggravating the problem have been recent moves to end reliance on nuclear power in Germany and continentwide efforts to cut greenhouse-gas emissions.
Europe’s need for gas is drawing cargoes of American liquefied natural gas, or LNG, across the Atlantic, feeding into higher prices for gas in the U.S. itself. It has also handed more sway to Russia, Europe’s biggest supplier. The Kremlin said last week that the shortfall could be eased by swifter approval for its Nord Stream 2 pipeline, which could double Russian supplies sent directly to Germany. The U.S. and many Europeans oppose the pipeline.
“Demand is high, and it’s unclear what winter will be like. If it will be cold, then of course more gas will be needed,” Kremlin spokesman Dmitry Peskov told reporters on Sept. 16, according to Russian media.
The jump in prices has drawn complaints from some in Europe that green policies can raise costs on consumers. The cost for an EU permit to emit a metric ton of CO2 hit €60 in August for the first time, which is especially painful for countries that rely on coal to produce electricity, particularly Poland.
“Polish power prices are tied to the EU’s climate policies,” Polish Prime Minister Mateusz Morawiecki said this month.
EU officials say one-fifth of the higher power costs can be attributed to the higher price for emitting CO2. The EU is targeting net-zero greenhouse-gas emissions by 2050, meaning that all carbon emissions would be offset by carbon-removal efforts.
The EU and the U.K., which has been hit hardest by the price increase, say the situation shows the need for more green energy.
“Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to strengthen our energy security,” Kwasi Kwarteng, U.K. secretary of state for business, energy and industrial strategy, told parliamentarians Monday.
The falling production in the Netherlands reflects a broader EU debate about the role of natural gas. The bloc’s executive arm has recognized that some countries that rely on coal to produce power will need to use gas-fired plants as part of a transition to cleaner energy, even as the bloc pushes investments away from fossil fuels.
“Nobody wants to invest in natural gas in Europe,” said Christoph Merkel, managing director at German consulting firm Merkel Energy, pointing to climate policy as one factor.
Gas production in Europe has declined precipitously in recent years, leaving Europe more dependent on fuel from Russia, Norway and the U.S.
Europe had in recent years banked on new sources for gas, from Azerbaijan to imports of liquefied natural gas to production of shale gas trapped in rocks, the kind of output that caused production in the U.S. to surge. But those have come up short.
The Kremlin has stepped into the gap, increasing shipments to Europe, including Turkey, to nearly 200 billion cubic meters in 2019 from under 140 billion cubic meters a decade earlier.
But this year, Russian state-controlled gas giant Gazprom PJSC has booked less additional export capacity through westward pipelines than traders expected. Some analysts say that looks like an effort to pressure the West over Nord Stream 2. Gazprom has said it is fulfilling contractual obligations.
The International Energy Agency said Tuesday that Russia’s exports to Europe were lower than they were in 2019. The energy adviser called on Moscow to send more gas to Europe to make sure the continent has sufficient supplies heading into winter.
At the heart of Europe’s decline in gas output has been Groningen. The field was one of the world’s largest when it started production in 1963, providing gas to heat homes and fire factories in northwest Europe.
The field, which is operated by a joint venture between Exxon Mobil Corp. and Royal Dutch Shell PLC, hit peak output of 88 billion cubic meters in 1976, about half of the volumes Russia sold to Europe last year.
Those days, the Dutch government aimed to sell as much gas as possible before it assumed nuclear power would take over. The field started to pump more gas again this millennium, reaching 54 billion cubic meters in 2013. But a series of earthquakes that damaged buildings raised public pressure on the government, which curbed output and decided in 2019 to close the field.
Last year, the field produced 8 billion cubic meters, and starting next year it will be used only in case of emergency supply shortages.
U.K. Suppliers Fail; Greece Sounds Alarm
Two more U.K. energy suppliers collapsed under the strain of surging energy costs, increasing the number of households caught up in the failures to 1.5 million, as Business Secretary Kwasi Kwarteng said the country should be prepared for higher prices in the longer term.
In the European Union, several members are calling for energy to be discussed at next month’s leaders’ summit, as talks on Wednesday that were meant to be about the transition to clean energy were hijacked by the crisis. The EU needs to intensify its power-saving efforts and expand use of renewable energy, Energy Commissioner Kadri Simson said.
Europe is facing a gas shortage after a long and bitter winter left storage sites depleted. Refilling them this summer hasn’t been easy, with top supplier Russia curbing flows to the continent.
U.K. Energy Supplier Collapse Affects 1.5 Million Households
More than 1.5 million households in Britain are being forced to switch energy suppliers after two more retailers collapsed on Wednesday, bringing the tally of companies going out of business to seven since early August.
The last two victims were Green Supplier Ltd. and Avro Energy Inc, which both stopped trading on Wednesday. Avro had 580,000 customers and Green had 255,000, accounting for 2.9% of households in Britain. Another five suppliers, with more than 650,000 customers in total, have also gone under since the start of August as natural gas and power prices surged to record-highs.
The announcements follow a prediction made by U.K. Business Secretary Kwasi Kwarteng on Tuesday that more companies would be in trouble. The secretary is holding daily meetings with energy regulator Ofgem to monitor the energy market and “step into gear processes to protect consumers,” he said in a tweet Wednesday.
“It’s not unusual for smaller suppliers to fail,” Kwarteng said.
Kwarteng has held emergency meetings with suppliers during the past few days. Companies have been asking for the price cap on default tariffs to be lifted to allow them to shift some of the pain onto consumers but the government has stated that this won’t happen. Instead, state-backed loans are being considered to help ease costs for larger firms to take on the customers of failed companies.
“The current market conditions are unprecedented, with record wholesale energy prices pushing the cost of energy above the price cap,” Green said in a statement. “This means that Green, like all other energy suppliers, are selling energy to customers at a loss.”
Ofgem will now find a supplier for the customers of Green and Avro. This is usually a straightforward process but larger companies may now be unwilling to take on clients at a loss. High gas prices aren’t likely to come down quickly, which as spurred the government to try to hash out a way to protect households and make sure they have a replacement supplier.
“The most important advice we can give you right now is to not panic,” said Alex Staker, head of commercial operations at price comparison provider Bionic. “Your energy supply won’t be disrupted and your power will not be cut off in the unfortunate situation that your energy supplier does go bust.”
Speaking to lawmakers earlier, Kwarteng said the country should be prepared for higher longer-term prices. RBC Europe Ltd. estimates that bills could jump by as much as 400 pounds ($546) a year because of surging costs.
“It’s a long winter ahead,” said Andy Harris, chief information officer of UtilityPoint, which ceased trading last week. “If we get a cold start, prices could go up even more and other firms could follow.”
It’s not just the U.K. A cold winter could ignite a Europe-wide energy-supply crisis. Prices already at record levels before winter has started has got governments worried. The issue of price volatility and the impact of soaring energy costs on public support for the shift to clean energy was raised unexpectedly at a meeting of EU energy ministers in Slovenia on Wednesday, according to a person with knowledge of the talks.
Several EU countries want the energy crunch to be put on the agenda for the summit of the bloc’s leaders on Oct. 21-22, according to an official of the European Commission who declined to be identified.
So far, the effects of the surge in prices is being felt most acutely in Britain. Food shortages may have been avoided for now after officials on Tuesday agreed to give “limited financial support” to help CF Industries Holdings Inc. restart a fertilizer plant halted by high gas prices.
Europe’s Fertilizer Crisis Spreads After Another Firm Cuts Output
Another European fertilizer producer, Borealis AG, is reducing output and more are expected to follow as surging natural gas prices squeeze profit margins in an industry already facing tight supply.
Ammonia is used to make nitrogen fertilizers, and prices are spiking as manufacturers grapple with dramatically higher costs for their main feedstock. That means added pressure on farmers, who may have to decide whether to pay up or cut fertilizer usage in spring, and could add to global food inflation.
Disruptions to ammonia supply can also have wider implications — the process produces carbon dioxide as a byproduct and U.K. food and livestock producers were thrown into crisis last week when two fertilizer plants closed, slashing CO2 supplies. So far, that doesn’t seem to be playing out elsewhere in the region.
About half of the continent’s ammonia capacity is probably at risk of shuttering or curtailing production, or already closed, according to CRU Group. Average site costs for ammonia have surged, from about $188 a ton in the fourth quarter of 2020 to more than $900 likely in the last three months of this year, said CRU head of fertilizers Chris Lawson.
Austria-based Borealis said Thursday it’s cutting production of ammonia in Europe and will “further analyze the situation” regarding its plants in Austria, France and the Netherlands, without giving more details. Norway’s Yara International ASA is already cutting about 40% of European ammonia capacity.
And while CF Industries Holdings Inc. agreed to reopen one of its U.K. plants on an interim basis, it’s likely to require sharply higher prices to keep running.
“This is an ongoing story. All the nitrogen producers in Europe will be reviewing what they do,” said Allan Pickett, head of analysis at IHS Markit’s fertilizer group, Fertecon. “With gas prices where they are, we would confidently expect that there will be significant pressure on many of the ammonia producers related to the fertilizer industry.”
While fertilizer prices will remain under pressure as long as natural gas keeps rallying, at some point farmers may refuse to buy or Europe will increase imports, Pickett said. Many European growers will already have sourced the fertilizer they need for now, so the current crisis is more likely to affect spring fertilizer applications.
The move by Borealis, one of the top-five nitrogen fertilizer producers in Western Europe, suggests that the industry has driven crop-nutrient prices as high as they can, said Bloomberg Intelligence analyst Jason Miner.
“Clearly they’re running close to margins, otherwise they wouldn’t have shut down,” he said. It’s “pretty likely that other plants will shut down unless natural gas prices change.”
Citi Isn’t Ruling Out Natural Gas At $100 In A Frigid Winter
Citigroup Inc. more than doubled its Asian and European natural gas forecasts for next quarter and said prices could surge to as high as $100 per million British thermal units in the event of a particularly cold winter.
Liquefied natural gas prices are skyrocketing as seasonally low European inventories, booming Chinese demand and supply constraints from Russia to Nigeria lead to a bidding war for the power generation feedstock before the northern hemisphere winter. Japan-Korea marker prices have jumped almost 50% so far this month to near $30 per mmBtu, while in Europe LNG is up around 40% to close to $25. Price gains in the U.S. have been more subdued.
Average prices next quarter will be moderately higher than current levels in Citi’s base case, the bank said in the note. However, there are likely to be price spikes and if unusually cold weather boosts demand and hurricanes in the U.S. Gulf of Mexico disrupt supplies, cargoes could trade in the $100 per mmBtu range, or $580 a barrel in oil-equivalent terms, it said.
“Global natural gas prices could continue to go parabolic in the coming weeks and months,” Citi analysts said in the note. “Strong demand and a lack of supply response have sharply tightened the market. Any surprise demand surge or supply disruptions could propel price further upward.”
The ripple effects from the surge in gas prices into other fuels also look wider than initially thought, Citi said. Switching to liquefied petroleum gas for heating will influence naphtha and gasoline, greater use of kerosene will affect jet fuel and diesel prices, while fuel oil will play a bigger role in electricity generation, it said. However the LNG rally will fade — prices could drop 70% by the third quarter of next year from this winter’s levels, the bank said.
Britain Scrambles For Truck Drivers After Shortages Spread
British energy firms are rationing supplies of gasoline and closing some petrol pumps — the latest in a string of shortages that have seen McDonald’s take milkshakes off the menu, KFC run short of chicken and gaps appear on supermarket shelves.
A big factor behind the problems is a lack of truck drivers. The U.K. is short tens of thousands of hauliers, as factors including Brexit and the coronavirus pandemic converge to create a supply-chain crunch.
Officials urged motorists not to panic-buy petrol after BP and Esso shut a handful of stations because there were not enough trucks to get gas to the pumps.
“The advice would be to carry on as normal,” Transport Secretary Grant Shapps said Friday.
Despite the plea, lines of cars formed at some gas stations across the U.K. as drivers filled up just in case.
As concern over the disruption mounts, the haulage industry is pressing the government to loosen immigration rules and recruit more drivers from Europe to avert Christmas shortages of turkeys and toys.
The government is resisting that move, and scrambling to lure more British people into truck driving, long viewed as an underpaid and underappreciated job.
“Driving isn’t seen as a 21st-century sexy vocation,” said Laurence Bolton, managing director of the National Driving Centre, a family-owned school for truck drivers in the London suburb of Croydon.
But that is starting to change. Bolton’s school has seen a 20% increase in applicants since the U.K.’s pandemic restrictions eased earlier this year, with bus drivers, laid-off hospitality workers and even former airline pilots seeking to retrain as truckers, a suddenly in-demand and increasingly well-paid occupation.
“It opens up the opportunities,” said 31-year-old Stephen Thrower, who works as a van driver but is training on trucks. “It’s more of a job for life.”
As a trainee trucker practiced reversing a huge rig between orange cones at the school’s asphalt lot, Bolton reeled off the ingredients that have made for a trucking crisis. Britain’s departure from the European Union prompted some European workers to head home.
The British government closed a loophole that many drivers used to keep tax payments down. COVID-19 lockdowns halted driver testing for months, stopping the flow of new truckers.
Countries including the United States and Germany are also facing a driver shortage. But the U.K.’s problem has been worsened by Brexit. Britain’s full departure from the EU last year ended the right of the bloc’s citizens to live and work in the U.K., making it harder for firms to employ the eastern European drivers that many had come to rely on.
The pandemic also disrupted labor markets around the world, throwing millions of people at least temporarily out of work. An estimated 1.4 million Europeans left Britain for their home countries during the pandemic, often to be closer to family. It’s uncertain how many will return.
Britain’s trucking industry is lobbying for truck drivers to be added to the “shortage occupation list,” which would make it easier to recruit drivers from Europe. There are similar calls from Britain’s farming and food processing industries, which are short of fruit-pickers and meat-packers.
The Conservative government has refused, saying British workers should be trained to fill the jobs.
“We’ve continually allowed our domestic market to underperform by essentially having wages undercut by people coming in prepared to do the job for less, and in pretty bad conditions sometimes,” Shapps told lawmakers Wednesday. “And that’s the wider picture that we’re determined to resolve.”
In an attempt to ease the shortage, the government has extended the number of hours drivers can work each week, increased trucker testing and “streamlined” the training process. One change means drivers no longer have to qualify on a rigid truck before moving up to huge tractor trailers.
Bolton generally welcomes the government moves, but has concerns about the safety of letting drivers move straight from cars to 18-wheelers.
“I don’t care if you’re the best car driver in the world — it’s 16½ meters (54 feet) long,” he said.
Shapps said the situation is improving “week by week” as more new drivers pass their tests. But businesses warn the solution won’t be quick or easy.
Ian Wright, chief executive of industry group the Food and Drink Federation, said the driver drought is part of a huge shakeup of labor markets and supply chains around the world.
“It’s going to get worse,” Wright said at a recent seminar organized by the Institute for Government think-tank. “We should get used to the fact that occasionally empty shelves … is going to be the new normal.”
For trainee truck drivers, that’s good news. Wages are up, and some firms are offering free training, signing bonuses and other incentives. A driver for a big supermarket can make up to 50,000 pounds ($68,000) a year, more than many teachers, police officers or even lawyers.
“It’s absolutely a drivers’ market right now,” Bolton said. “They know they’re in demand. And it’s sort of turned into a bit of a bidding auction for lorry drivers at the moment — which is great because it’s been a long time coming.”
Cadhene Lubin-Hewitt, a London bus driver preparing to take his truck-driving test, started thinking about making the move when he got laid off last year because of the pandemic. News of the truck driver shortage convinced him he is doing the right thing.
The 32-year-old hopes to work for a big supermarket or delivery company, and says he doesn’t worry about the loneliness, or the stress. He finds long-distance driving relaxing, “like going to a spa.”
“I wouldn’t find it boring at all,” he said. “I’d just blast (the music) higher, and go down the road smiling and singing.”
U.K. May Ease Trucker Visas; EG Caps Fuel Buying: Energy Crisis
The U.K. looks set to allow thousands of European truckers to work temporarily in the country, as the government seeks to quell panic-buying at gas stations triggered by a shortage of fuel-delivery drivers.
EG Group, owner of the Asda retail brand, will limit each customer to 30 pounds on all grades of fuel because of what it called unprecedented demand. Some BP Plc stations were short of at least one grade, and Royal Dutch Shell Plc said it’s rescheduling fuel deliveries.
Voters in the country now face growing shortages of fuel and food, and an increase in living costs. Despite riding to power on a Brexit campaign that pledged to cut immigration from the European Union, Prime Minister Boris Johnson and his cabinet are now preparing a policy U-turn.
EG Group Limits Fuel Purchases (11:21 p.m. U.K.)
EG Group said it will introduce a limit of 30 pounds per customer on all grades of fuel amid “unprecedented customer demand for fuel and associated supply challenges.”
All of EG Group’s U.K. sites remain open and operational, according to an emailed statement. The limit doesn’t apply to heavy goods vehicle and emergency services drivers.
U.K. Set for Trucker Visa U-Turn (5:00 p.m.)
The government is set to issue as many as 5,000 short-term visas for European truck drivers, according to a report in the Telegraph late Friday. Home Secretary Priti Patel has dropped her earlier opposition to such a plan, the newspaper said.
“We’re looking at temporary measures to avoid any immediate problems,” a Downing Street spokesperson said in a statement earlier. “But any measures we introduce will be very strictly time limited.”
Sainsbury Closes Some Pump Stations (6:09 p.m.)
U.K. retailer Sainsbury has closed a few pump stations in the country, which has been beset by panic buying as a lack of truck drivers disrupts deliveries.
“A tiny proportion of our petrol filling stations are temporarily closed,” the company said by email. “All our sites are receiving more fuel and we’ll reopen again as soon as possible.”
Fuel Queues Highlight Brexit Fallout (5:17 p.m.)
The red lines of Boris Johnson’s Brexit project are starting to crack as voters face growing shortages of food and fuel, as well as a marked rise in living costs.
Despite riding to power on a Brexit campaign that pledged to cut immigration from the European Union, Johnson and his ministers are now considering what would be a significant and politically damaging U-turn: Tapping those same EU workers to plug the labor shortages crippling parts of the U.K. supply chain.
Some Shell Stations Without Fuel in London (5:07 p.m.)
Several Shell filling stations across London and the South East ran dry on Friday after the rush for fuel, according to Bloomberg journalists in those places.
Shell declined to elaborate beyond a previous statement that said the company is rescheduling fuel deliveries in the U.K. amid an increase in demand at some of its stations. The demand increase “may in some instances result in larger queues,” it said earlier.
Separately, at least 50 of BP’s network of U.K. service stations were short of at least one grade of fuel, a company spokesperson confirmed.
No Fuel Shortage, Says Motoring Group (2:47 p.m.)
“There is no shortage of fuel and thousands of forecourts are operating normally with just a few suffering temporary supply chain problems,” said Edmund King, president of British motoring group AA.
“Drivers should not fill up outside their normal routines because, even if the occasional petrol station is temporarily closed, others just down the road will be open,” he added, noting that Fridays and weekends always tend to be busier at service stations.
The BRC, which represents 170 major retailers across multiple sectors, wants the government to create temporary work visas to allow drivers from abroad to fill the gap, Opie said.
Energy Crunch Hits British Vegetables (1:33 p.m.)
The cost of growing young British tomatoes, cucumbers and peppers is surging, in the latest example of how the energy crunch is roiling the country’s food sector.
The vegetables aren’t suited to grow in the U.K. climate, but can flourish in heated greenhouses. While the current season for growing crops like tomatoes is drawing to a close, farmers will soon house seedlings for next year’s harvest, according to Nigel Jenney, head of the Fresh Produce Consortium.
That makes the recent spike in gas costs particularly worrisome, as the glasshouses for young plants must be heated through the winter before the weather warms. The rising energy bills are “a huge additional burden” on growers, and some might cut back or delay plantings, Jenney said.
Miners to See Long-Term Effects of Energy Crisis (1:21 p.m.)
The unprecedented jump in power prices will hit miners for years to come because new long-term contracts will take current levels into account, an executive at Swedish miner Boliden AB said. The company just signed a new 15-year accord to supply a smelter in Norway that’s being upgraded.
“Contracts will have to be renewed sooner or later. However they are written, you will eventually get hurt because of the situation in the market,” Mats Gustavsson, vice president for energy at Boliden, said in an interview. “If you are exposed to the market, the operational expenses have of course increased.”
Some Esso Stations Still Affected (12:34 p.m.)
A small number of Esso-branded pump stations are still impacted in some way by the disruption in U.K. fuel deliveries, a spokesman for Exxon said.
The affected stations are in the Tesco Alliance business of 200 stations, which means there’s a Tesco shop on the site. Exxon arranges supply of fuel to the Tesco Alliance outlets. The U.K. has a further 1,000 Esso-branded sites, but supply to those is arranged by other companies.
Big Queues at Filling Stations (12:25 p.m.)
Fuel is still available — as long as you’re prepared to wait. By lunchtime in Ashford, Kent, lines had formed outside outside Esso and BP outlets, while a much longer traffic queue had formed outside Tesco Extra on the outskirts of town.
It was a similar picture at West Wickham, South East London, where the line of drivers waiting to fill up at a Shell outlet blocked traffic.
LOOK: U.K. drivers rushed to queue up for fuel after BP and Exxon Mobil said a shortage of truck drivers was hampering deliveries to some filling stations https://t.co/ekF5y9ZXtT pic.twitter.com/H8z4PKwRpY
— Bloomberg Quicktake (@Quicktake) September 24, 2021
Shell Sees Tight Gas Market Through 2025 (12:02 p.m.)
Shell expects the global natural gas market to remain tight through 2025, according to a note from Jefferies, citing a sell-side event with the company.
According to Shell, the price environment for term contracts is improving and “it is a seller’s market again,” as buyers realize the importance of stable, reliable long-term supply, the note said. Shell has oriented its business to benefit from attractive gas-market fundamentals, but current conditions are more extreme and have developed more quickly than expected.
Energy Crisis Puts World’s Most Ambitious Climate Plan To Test
The record spike in energy prices could hardly have come at a worse time for Europe’s ambitious new climate plan, with politicians just beginning to talk about how they’re going to implement the world’s most sweeping emissions-cutting strategy.
The energy crisis is threatening double-digit increases in consumer electricity bills months before the winter freeze and it’s also squeezing industrial giants. As European governments scrambled to blunt the impact on consumers — Greece promised subsidies on power bills, for example — threats of blackouts in the U.K. this past week were a vivid reminder of the fragility of energy supplies.
For the European Union, which is proposing to ban new fossil-fueled cars by 2035 and impose new costs on dirty home heating, the steep costs of such an ambitious plan will be an even tougher sell to voters already reeling from hikes in utility bills.
Of course the current level of energy prices has the potential to make discussions on the climate package more complex,” said Peter Vis, a senior adviser at the Rud Pedersen Public Affairs consultancy and a former political aide to the EU’s first climate commissioner. “But to weaken the package due to the energy crunch today would detract from the longer-term solution of reducing Europe’s dependence on fossil fuels without addressing the cause of the gas supply squeeze.”
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 EU wants to lead the global fight against climate change, setting an example for other major emitters such as the U.S. and China. Its overarching goal in the Green Deal strategy is to reach net zero emissions by 2050.
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.
As the political talks get underway, governments from Madrid to Amsterdam are taking steps to alleviate the immediate impact of the energy crisis and prevent backlash against carbon-cutting policies. Measures to reduce emissions “may not stand a sustained period of abusive electricity prices,” Spain told the EU in a letter on Sept. 20, recalling the yellow vests protests that shook France two years ago.
The gas crisis already hijacked this week’s meeting of energy ministers, called to discuss draft laws to increase the share of renewables and boost energy savings. While the EU has limited powers in the area of energy policy, which largely remains in the hands of member states, the European Commission pledged to publish in the coming weeks guidelines on what short-term tools nations can use in line with the bloc’s law. Options include reducing value added tax and excise on energy.
In Greece, Prime Minister Kyriakos Mitsotakis earlier pledged to grant a power subsidy in the fourth quarter for all households aimed at covering most of the expected price spike in power bills. He also announced a reduction of sales tax until June 2022 for coffee, transport, non-alcoholic drinks, cinemas, gyms, dance schools and tourism packages.
The Netherlands amended the country’s budget to include 500 million euros ($586 million) to lower energy costs for companies and households. Spain will slap a windfall tax on power utilities and cap consumers’ energy bills, a move that critics said could limit investment in renewables.
“That is not sustainable,” Ignacio Galan, the chief executive officer of Spanish power company Iberdrola SA, said in an interview on Bloomberg TV. “That puts at risk the whole energy transition.”
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.”
The biggest industrial energy users are particularly exposed to the immediate impact of the price spike. Zinc producer Nyrstar NV said on Thursday it is cutting output at a major Dutch plant during peak times of day. For regional aluminum producers, electricity costs could equate to about 80% of the commodity’s overall price, the metals industry association Eurometaux said in a letter to the EU energy chief Kadri Simson, urging further support for the sector.
“These rising electricity prices have already led to curtailments and could lead to further relocation of our sector outside Europe if not addressed,” the lobby said. “More broadly, we’re also concerned that if electricity remains too expensive, it will disincentivise industrial electrification as a decarbonisation route, undermining the EU’s Green Deal objectives.”
More Than Half U.K. Adults Say Shortages Disrupt Food Shopping
More than half of U.K. adults said they faced more difficulties than usual shopping for food over the past two weeks, according to an official survey that highlights the worsening impact of labor and good shortages on consumers.
Some 40% said there was less variety in the shops than normal, according to a poll by the Office for National Statistics of 4,994 households between September 8 and 19.
About 18% of those surveyed said they hadn’t been able to buy essential food items, 25% said they hadn’t been able to buy non-essential food items, and a further 8% said they’d had trouble buying medicine or fuel.
British households are facing gaps on shelves and price increases, as a growing energy crisis collides with labor shortages and supply-chain disruptions caused by Brexit and the pandemic.
A separate survey by the CBI, Britain’s biggest business lobby group, found that the volume of stock for distribution and retail, in relation to expected sales, was seen as too low for the fifth month running in September.
“Low stock adequacy remains a concern across the distribution sector,” CBI economist Ben Jones said.
“Respondents to our survey have told us that they do not expect the transport and production issues that are causing these shortages to ease significantly until at least next year and, in some cases, beyond,” he said.
U.K. Tomatoes And Cucumbers Could Be Next Victims of Gas Crunch
The cost of growing young British tomatoes, cucumbers and peppers is surging, in the latest example of how the energy crunch is roiling the country’s food sector.
The vegetables aren’t suited to grow in the U.K. climate, but can flourish in heated greenhouses. While the current season for growing crops like tomatoes is drawing to a close, farmers will soon house seedlings for next year’s harvest, according to Nigel Jenney, head of the Fresh Produce Consortium.
That makes the recent spike in gas costs particularly worrisome, as the glasshouses for young plants must be heated through the winter before the weather warms. The rising energy bills are “a huge additional burden” on growers, and some might cut back or delay plantings, Jenney said.
“This is absolute decision time for next year’s crop,” he said by phone. “What you have is a situation where you’re nurturing and growing these crops for four to five months in the coldest period of the year, which is your largest energy demand, before you have any crop to sell.”
Higher growing costs risk further stoking food inflation, as the sector also contends with truck-driver shortages and staffing problems in the wake of Brexit and the pandemic. The country’s recent carbon-dioxide crunch is another headache, as the gas is used widely, including at slaughterhouses and soft-drink plants, as well as in food packaging.
There are also concerns about rising energy costs in the Netherlands, which is a large user of greenhouses, said Cilia Ruinen, an analyst at ING Bank.
China’s Guangdong Calls for Reduced Power Use at Shops, Offices
The Guangdong government called on some industries and households to cut electricity usage after a power crunch caused primarily by a heat wave.
The southern Chinese province’s government is encouraging so-called tertiary industry users such as office buildings, shopping malls, hotels and entertainment facilities to reduce power load during peak hours, according to a statement posted on the official Wechat account of the Guangdong Provincial Development and Reform Commission on Saturday.
It also called on the general public to save electricity through measures such as adjusting air-conditioner temperatures to 26 degrees or above.
Peak power demand in the export-oriented province rose to a record 141 million kilowatts as of Sept. 23 after a heat wave that began earlier in the month. Temperatures hit an average daily high of 34.4 degrees, 2.2 degrees more than the same period in previous years, the statement said.
Power demand also typically jumps in the peak season for export orders of September and October. Industrial enterprises in many regions across the province are already staggering their power use by shutting operations four or five days a week, impacting economic activities, according to the government’s statement.
Tight supplies, high fuel prices as well as defects in power equipment running at peak rates also contributed to the power crunch.
More BP Stations In U.K. Run Out of Fuel Amid Panic Buying
BP Plc, the second-largest fuel retailer in the U.K., said it has run out of the main grades at almost a third of its stations in the country following days of panic buying.
“With the intense demand seen over the past two days, we estimate that around 30% of sites in this network do not currently have either of the main grades of fuel,” BP said in a statement Sunday. The London-based company said most of its 1,200 sites in the U.K. remain supplied and open.
A shortage of truck drivers, which had already left some British supermarkets unable to fill their shelves, began to hit fueling stations late last week. BP and Exxon Mobil Corp. were among companies saying the driver shortage had affected operations at their gas stations, while EG Group said it would limit customers to 30 pounds ($41) of fuel, enough to fill about one-third of a tank.
The crisis has caused Prime Minister Boris Johnson to cave into industry demands to issue foreign truck drivers with temporary work visas, through Christmas Eve.
The government said late on Saturday it will issue 5,000 visas to drivers and 5,500 to poultry workers. That’s still far from the roughly 100,000 heavy goods vehicle drivers the country needs, according to estimates from the Road Haulage Association.
BP said it’s working with its haulier supplier Hoyer to minimize disruptions.
In west London on Sundaym around Chiswick and Richmond, at least four stations had completely run out of fuel. Another had gasoline but not diesel. Gas stations run by other companies had fuel, although all visited by Bloomberg News were limiting purchases to £30 per customer.
Royal Dutch Shell Plc said that since Friday it has seen higher-than-normal demand across its network “which is resulting in some sites running low on some grades.”
“We are replenishing these quickly, usually within 24 hours,” it added. Any measures “that will help to ease the pressure on the fuel supply chain are welcome,” it said.
Russia Shows Its Growing Sway Over Global Energy Markets
Moscow’s huge oil and gas reserves have given it more influence over Western and Chinese economies grappling with rising prices.
The natural gas shortage that drove prices to records in Europe has exposed Russia’s rising leverage over global energy markets, with Moscow now playing a key role in everything from OPEC negotiations to coal exports to China.
Russia, the world’s largest exporter of gas and the source of more than a third of Europe’s gas, has emerged as a critical supplier with the power to quickly alleviate the continent’s gas deficit.
Western officials accuse the Kremlin of trying to score geopolitical points by withholding extra supplies, a charge Moscow denies. Moscow instead says it is the troubleshooter in volatile global energy markets. It denies it is exploiting its huge energy reserves for political gain.
Moscow’s leverage was on display last week when gas prices dropped suddenly following comments by President Vladimir Putin that Russia would help stabilize the energy market.
On Wednesday, Mr. Putin said that Russia was ready to discuss with Europe steps to ramp up gas exports and blamed the gas crunch on a lack of reserves and long-term planning.
“As for the use of energy as some kind of weapon, this is exactly what can be called politically motivated blather, which has no substance at all,” Mr. Putin said at an energy forum in Moscow.
In the oil market, Russia has in recent years increased its influence over the Organization of the Petroleum Exporting Countries, despite not being a formal member. In Asia, Moscow has become a significant energy player, starting gas exports to China in 2019 and increasing coal deliveries there this year. Coal plays a major role in powering the Chinese economy.
“The European gas crisis has shown the extreme leverage that Russia has over Europe and beyond,” said Thierry Bros, an energy expert and professor at Sciences Po Paris. “Putin is the only one who could prevent blackouts in Europe because Russia has spare capacity. This is a position of power.”
European countries such as Germany have said that Russia is fulfilling its long-term contracts. However, European officials say Russia is deliberately withholding gas from the short-term spot market and lawmakers called for a probe into Russia’s manipulating the market.
The International Energy Agency said last month that “Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season.”
On Wednesday, Mr. Putin said that Europe mistakenly banked on “the invisible hand” of the spot market, which boosted prices further. Moscow has urged Europe to move toward more long-term contracts.
“Nothing can be delivered beyond the [existing] contracts,” Kremlin spokesman Dmitry Peskov said Wednesday. Any extra deliveries are “a matter of negotiating.”
Russia’s expanding energy influence gives the Kremlin important geopolitical leverage amid worsening relations with the West and a way to challenge Washington’s clout. It also provides Moscow with an important source of revenue to address stagnating living conditions at home.
Russia has dominated gas supplies to Europe since Soviet times, when it built a pipeline to the West, but its grip on that market has increased in recent years as it opened routes to China and started liquefied natural gas exports.
While the U.S. has ramped up its own exports in recent years, LNG cargoes traveling by ship from the Gulf Coast and elsewhere often can’t compete on price with cheaper Russian pipeline gas.
Moscow has a 25% share of global gas exports, according to BP PLC’s annual statistical report, and controls 13.3% of global oil production, including condensates, compared with 12.3% for Saudi Arabia.
“Russia is a superstore when it comes to energy,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
The surge in European gas prices has shut down factories and left government officials scrambling to prevent rising energy bills before the region’s winter. The European Commission is setting out this week a series of measures it believes national governments can take to alleviate the price increases, from tax cuts to price targets for low-income families.
While the gas crunch has been caused by a variety of factors, including low stockpiles, falling European production and rising Asian demand, Moscow’s reluctance to book large additional flows has exacerbated the deficit. European officials say Moscow is using that to pressure regulators into approving Nord Stream 2, a controversial gas pipeline to Germany that is close to launching.
The pipeline would allow Moscow to bypass Ukraine and Poland, whose governments are critical of the Kremlin. Russian energy minister Alexander Novak said last week that approval of the pipeline would help solve the crisis. Moscow denies it is using the gas shortage to pressure regulators to approve Nord Stream 2.
“Russia has an enormous gas resource and proximity, and yet has not delivered natural gas as one would reasonably expect them to,” said Frank Fannon, who was assistant secretary of state for energy resources under the Trump administration. Western governments should “deny the Kremlin the ability to use gas transit, however the route, as a geopolitical weapon.”
Mr. Putin last week said that Russia’s energy exports to Europe could reach a record this year.
But while analysts agree that Russia is observing the contracts, it hasn’t yet used its huge spare capacity to send more gas westward.
“There’s a lot of schadenfreude in Moscow,” said Alexander Gabuev, senior fellow at the Carnegie Moscow Center. “The mood here is that we did everything in our power to supply what we promised to supply, and as for the rest, it’s a big middle finger.”
Russia is also enjoying newfound clout in oil markets, both as a top exporter and as the kingpin in a global oil-producers alliance.
In 2016, Mr. Putin struck an alliance with OPEC that helped reverse an oil price crash by agreeing to cuts. But Russia has also repeatedly vetoed proposals by OPEC leader Saudi Arabia. In 2020, Moscow’s refusal to endorse production cuts proposed by the Saudis amid the Covid-19 pandemic triggered a price war that led U.S. oil benchmarks to turn negative for the first time in history.
More recently, when Saudi Arabia predicted the current gas crisis would lead to a boost in oil demand of 500,000 barrels a day, Russia said the group’s plans for a gradual increase in production needn’t be changed. Moscow’s position prevailed at an OPEC meeting last week, which decided to keep easing production cuts slowly.
In Europe, Moscow controls 53% of the oil market compared with 16% for Riyadh, according to BP.
Moscow is also stealing market share from the U.S. Russia’s oil production is set to rise by 1 million barrels a day next year, compared with 780,000 barrels a day for the U.S., according to a confidential internal OPEC report.
In Asia, Russia is making up for coal shortages in China, following a ban on Australian imports of coal by Beijing. It is also planning a second gas pipeline to China, following a $55 billion gas pipeline that began exporting there in 2019.
“Russia’s role as an energy superpower is suddenly very clear,” said Daniel Yergin, vice chairman of consulting firm IHS Markit.
EU Plans Emergency Intervention To Stem Surging Power Prices
* Electricity Prices In Europe Soared Almost 10-Fold In One Year
* EU’s Von Der Leyen Says Steps Coming Without Offering Details
The European Union is planning urgent action to try to dampen soaring power prices and is putting together proposals to reform the electricity market, according to Commission President Ursula von der Leyen.
“Skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design,” von der Leyen, who heads the EU’s executive body, said Monday in a speech at the Bled Strategic Summit in Slovenia.
“It was developed under completely different circumstances and completely different purposes,” she added. “That’s why we are now working on an emergency intervention and a structural reform of the electricity market.”
The unprecedented spike in power prices, which have soared almost 10-fold in the past year, has fueled inflation and dramatically increased the economic burden on businesses and households recovering from the pandemic.
More and more member states are calling for a price cap and the Czech Republic, which holds the rotating presidency of the EU, will convene an extraordinary meeting of energy ministers on Sept. 9.
The exact makeup of an EU intervention plan is still being developed, and EU diplomats said the commission could offer a detailed plan as soon as this week.
“As Europe finds itself amid extraordinary circumstances, extraordinary interventions do make sense,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank. “However, a number of trade-offs exist, and the key challenge for European policymakers will be to avoid throwing the baby out with the bathwater.”
A draft internal EU document seen by Bloomberg News earlier this year showed the commission considered an option of capping gas prices to avoid “unbearably high” costs if Russia significantly limits or cuts off the flow.
Introducing a maximum regulated price in an emergency would be limited to its duration and the market price should be used as long as possible.
One possibility would be to limit price formation during the disruption scenario by capping the price on European gas exchanges, but the document showed such a price cap can in general be introduced in different ways and can intervene at different levels of the gas value chain.
With Russia squeezing gas deliveries and power-plant outages further sapping supply, pressure is growing on EU leaders to act quickly or risk social unrest and political upheaval.
European natural gas prices on Monday plunged the most since March after Germany said its gas stores are filling up faster than planned. Benchmark Dutch front-month futures fell as much as 21%, partly reversing last week’s jump of almost 40%.
The price spikes and shortfall in Russian deliveries are also putting unprecedented pressure on some power companies.
German utility Uniper SE has requested an additional 4 billion euros ($4 billion) from Germany’s state-owned lender KfW after fully using its existing 9 billion-euro credit line, it said on Monday.
That additional funding is about double its current market value.
The European Energy Exchange AG also said that traders need more government support to guarantee their buying and selling, particularly given the unusually volatile markets.
Electricity prices for next year surged above 1,000 euros per megawatt-hour earlier on Monday, before plunging more than 20% on EEX, Europe’s biggest marketplace for power contracts.
On the EU front, Czech Prime Minister Petr Fiala is seeking backing for his price-cap plan and discussed it with German Chancellor Olaf Scholz at bilateral talks in Prague on Monday.
Scholz told reporters at a joint news conference that he was grateful for the Czech proposal for a price cap and expressed confidence that the EU would reach an agreement quickly.
“We will look very carefully at what instruments we have that we can use to bring down electricity prices,” Scholz said. “It’s not something that can happen at random, it has to work in a technical sense, but obviously what is being set now as the market price is not a real reflection of supply and demand.”
The Czech presidency will seek to broker a solution before the Sept. 9 meeting of energy ministers in Brussels, Fiala said.
“In general, I can perhaps say that, for example, decoupling electricity prices from the cost of gas is one of the paths we can consider,” he told reporters.
The skyrocketing electricity prices are now exposing the limitations of our current market design.
It was developed for different circumstances.
That’s why we are now working on an emergency intervention and a structural reform of the electricity market. pic.twitter.com/8f8FYZXCit
— Ursula von der Leyen (@vonderleyen) August 29, 2022
Czech officials are proposing to cap prices of natural gas used for power generation, Industry and Trade Minister Jozef Sikela said earlier Monday.
After a weekend full of negotiations, I can announce that I am convening an extraordinary meeting of the Energy Council. We will meet in Brussels on the 9th September.
We must fix the energy market. Solution on the EU level is by far the best we have. pic.twitter.com/tsOzOSHpx0
— Jozef Síkela (@JozefSikela) August 29, 2022
“We may open the question of emission allowances, as some other member states have done in past, that also present a major part of the total price,” Sikela said.
“We may open the question of the overall market regulation, total decoupling of the prices,” he added, while cautioning that the bloc cannot meddle too much with the market or fuel speculation.
EU member states have already earmarked about 280 billion euros ($279 billion) in measures such as tax cuts and subsidies to ease the pain of surging energy prices for businesses and consumers, but the aid risks being dwarfed by the scale of the crisis.
Governments have also started to limit energy use, banning outside lighting for buildings in Germany and lowering indoor heating temperatures, to meet the EU voluntary target of cutting gas demand by 15%.
Belgian Prime Minister Alexander De Croo said Monday that it’s time for the EU to act.
“I really think that we should intervene because that cost of uncertainty is really becoming impossible,” De Croo said at an energy conference in Stavanger, Norway. “I believe that we should intervene and from my country we have been advocating price caps in the gas market and the wholesale price market for a long time. This is a short-term solution, a temporary intervention.”
In France, President Emmanuel Macron repeated his call for a reform of the EU electricity market before a meeting with Polish Prime Minister Mateusz Morawiecki on Monday. He is aiming for a market “protected from elements of speculation” and with new pricing formulas.
EU Working On ’Emergency Intervention’ To Curb Soaring Electricity Prices
The president of the European Union says the bloc is urgently working on a plan to get power prices, soaring for months now due to fallout from Russia’s invasion of Ukraine, under control.
Ursula von der Leyen made the comments at a speech at the Bled Strategic Summit in Slovenia on Monday. “The skyrocketing electricity prices are now exposing the limitations of our current market design.
It was developed for different circumstances. That’s why we are now working on an emergency intervention and a structural reform of the electricity market,” she tweeted.
Von der Leyen didn’t include any details in her comments, but the speech coincided with a fresh record for European benchmark German power prices for 2023, which soared past €1,000 ($993) on Monday. French prices reached that high on Friday.
She said the region needs a “new strategic thinking to defend the rules-based order,” and that should start with ending dependency on Russian fossil fuels, which the bloc has been racing to do ahead of winter.
“Our increased need for other raw materials must not create new dependencies. We must diversify supply and build ties with reliable partners,” she added, noting she will be in Canada in two weeks to help advance a partnership with that country.
The Czech Republic, which currently holds presidency of the EU, has called for a Sept. 9 extraordinary meeting of energy ministers.
The country’s prime minister, Petr Fiala, reportedly said Monday that “decoupling electricity prices from the cost of gas is one of the paths we can consider” to bring down soaring electricity costs.
German Chancellor Olaf Scholz last week failed to secure a promise by Canada to ship liquefied natural gas to Europe, but his country gotten an agreement from Denmark to boost offshore wind supply and hook it up to the German grid.
By 2030, offshore wind capacity in the Baltic Sea is expected to supply 4.5 million European homes with electricity.
The here and now remains a problem for Europe, though after a summer of heat waves and droughts that are threatening crops and now a winter for its citizens that could mean power blackouts if countries have not set enough natural gas aside.
Germany is among countries that have been cutting consumption and telling citizens to conserve energy, and the country appears to be on track to meeting its target for gas savings.
Pressure on that natural gas has weighed on electricity demands in the region, as well as in the U.K., where the energy regulator has raised the country’s price cap by 80% to £3,549 ($4,200) a year.
In the near term, Europe is facing fresh worries over another shutdown for the crucial Nord Stream 1 natural gas pipeline, due to a three-day maintenance from Aug. 31 to Sept. 2.
Some are concerned that Russia may use the shutdown as an excuse not to resume flows, something that EU leaders are not discounting as they scramble to cut reliance on Moscow.
Moscow has already cut deliveries over the pipeline to 20% of maximum capacity, blaming turbine issues. Europe has accused Russia of throttling supplies to Europe as revenge for sanctions imposed over its nearly six-month invasion of Ukraine.
EU To Hold Emergency Energy Meeting On Sept. 9, Czechs Say
The Czech Republic, which holds the European Union’s rotating presidency, called an extraordinary meeting of energy ministers to discuss a bloc-wide solution to the spike in power markets.
The meeting, which will take place in Brussels on Sept. 9, will debate concrete measures to tackle the energy crisis, according to Industry and Trade Minister Jozef Sikela. The energy market “has stopped functioning and we have to fix it,” Sikela told reporters in Prague on Monday.
Czech officials are proposing to cap prices of natural gas used for power generation, Sikela said.
Czech Prime Minister Petr Fiala said earlier Monday that he spoke with European Commission President Ursula Von Der Leyen about possible ways to help people and businesses cope with high energy costs that could be supported by other member states.
Fiala is also meeting with German Chancellor Olaf Scholz in Prague on Monday to discuss pan-European approaches to tackling the energy crisis.
White House Concerned About Energy Shortage Threat In Europe
* Energy Prices In The European Union Rising As Winter Nears
* EU Is Considering Urgent Steps To Ease The Rise In Prices
The US is concerned about an energy shortage in Europe and will work to alleviate that potential threat as the European Union faces soaring power prices ahead of winter, a top White House aide said.
“We’re concerned about potential energy shortages in Europe as the winter approaches,” National Security Council spokesman John Kirby said Monday. “This is something we’re going to stay focused on as the fall turns to winter, and we’ll be latched up with allies and partners to try to do what we can to alleviate any shortages coming through.”
Russian efforts to squeeze gas deliveries have contributed to soaring power costs. On Monday, European Commission President Ursula von der Leyen said the bloc is considering urgent steps to ease the rise in prices, eventually seeking to break the link between gas and the cost of electricity.
European nations are also moving to encourage reduced consumption, and the EU is convening an emergency meeting of energy ministers on Sept. 9.
US President Joe Biden in March set up a joint task force with the EU focused on expanding energy suppliers to European nations in March. Kirby said the US would “continue to work with distributors, and energy companies around the world, to try to alleviate whatever shortages that might be in place, or might be coming going forward.”
The Biden administration, though, is walking a difficult line in encouraging expanded energy resources for Europe while also maintaining adequate supplies for US consumers.
Energy Secretary Jennifer Granholm earlier this month wrote to refiners, including Exxon Mobil Corp., Valero Energy Corp., and Phillips 66, warning that the administration is considering “emergency measures” to address fuel exports if supplies of gasoline and diesel fuel remain at low levels in the Northeast. US officials say they are not considering export controls.
Kirby said he was confident of Europe’s commitment to supporting Ukraine, despite concerns about energy prices.
“What we see from a diplomatic perspective, what we see on the economic front, and frankly, what we see on the security assistance front, is an impressive, an absolutely unchanged sense of resolve and unity over supporting Ukraine,” he said.
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