European energy prices continue to skyrocket with no end in sight.
Key details
Energy prices are spiking across Europe in response to the continued effects of the Russian war in Ukraine. Volatile electricity prices are becoming worse due to the Russians threatening energy supplies. Prices have continued to skyrocket for the past six weeks and are placing Europe in a dangerous position for the winter.
“Energy traders in Europe are witnessing price increases that are hard to fathom. Natural gas, which is used to generate electricity and heat, now costs about 10 times more than it did a year ago. Electricity prices, tied to the price of gas, are also several times higher than what used to be considered normal,” says The New York Times.
Just today, energy prices exceeded 1,000 euros per megawatt-hour in France.
“The French year-ahead contract rose as much as 25% to 1,130 euros a megawatt-hour on the European Energy Exchange AG Friday. The German equivalent also gained to a record, rising as much as 33% to 995 euros a megawatt-hour for a gain of about 70% this week. In oil market terms, it’s the equivalent of over $1,600 a barrel,” says Bloomberg.
Why it’s important
Europeans are facing the prospect of running out of gas in the coming months. The shortages of gas, natural gas, and other energy sources are threatening the possibility of mass outages during the winter and threaten lives. Europe imports a third of its natural gas from Russia.
“Natural gas is the driver for the European electricity price,” says former Centrica CEO Iain Conn.
“Russia has slashed gas flows to Germany and other countries. Even before the coming three-day shutdown, Nord Stream 1, a key conduit of fuel to Germany, has been flowing at only 20 percent of capacity. These cutbacks are forcing gas providers to buy gas on the spot market at higher and volatile prices than under longer-term Gazprom contracts,” says NYT.
Multiple E.U. countries are rushing to important gas and natural gas from other countries, including the United States, the curb the possibility of having energy totally cut off from Russia. U.K. utility officials are warning that conditions are going to get “much much worse before they get better.”
Some analysts are pushing for an increase in wind and solar power but it is “unlikely, though, that fundamental changes can be pushed through in time to help this winter,” as NYT notes.
Surprising statistics
- British electricity hit a record average of £500 pounds per megawatt-hour, five times what it was last August, as of Thursday
- British regulators nearly doubled the price cap of electricity and gas to £3,500 a year for a typical home, as of Thursday
- Day-ahead Italian electricity prices increased last week by 17% to 718.71 euros per megawatt-hour
Notable quote
“Analysts say that so far [wind and solar power] technologies are helping only marginally to lower prices because in wholesale electricity markets natural gas remains the key determinant in power prices. Chris Matson of LCP estimated that in 2021 Britain’s power prices were determined by gas more than 90 percent of the time, even though the fuel accounted for only about 40 percent of total generation,” says The New York Times.
