Family and friends in Spain have been complaining for a while now about high electricity prices.
Luckily, it’s still the end of summer, so it’s warm. But they tell me they’re avoiding turning on their ovens and are even getting up in the middle of the night to do laundry.
Things have gotten so bad there that the government has decided to cut energy taxes in an effort to bring prices down.
Yet, it’s not just in Spain this is happening. It’s a problem all over Europe and the UK.
Energy prices have increased this year. Coal is up, gas prices have gone vertical and oil is closing in on US$80 a barrel.
In the UK, there are reports of large queues at gas stations, fertiliser factories have had to shut down production, disruptions in steel production, and even talks of blackouts.
Renewables have been copping much of the blame for Europe’s energy crisis, in particular, offshore wind. The calmer weather has meant less production for European wind farms.
The problem with that is it has come at the same time as a crunch on gas, which is a problem in itself as natural gas and coal still supply over 35% of the EU’s total production.
There are a few reasons for the crunch in gas supply.
For one, it’s been a hot summer, so supply and storage were already low.
Then there was Hurricane Ida which affected US production, along with lower imports from Norway and Russia.
There’s been more demand from Asia, which has been competing with Europe for shipments of LNG.
For Britain, there’s been the added complication of Brexit with supply bottlenecks and a shortage of truck drivers.
And lastly, there’s been the little issue of Nord Stream 2.
If you haven’t heard of it, it’s a 1,230km pipeline that goes under the Baltic Sea from Russia to Germany.
About 40% of Europe’s gas comes from Russia and with Nord Stream 2, Russia would double its annual gas export capacity to 110 million cubic metres.
Now, the big deal is that the new pipeline bypasses the Ukraine and Poland, allowing Russia to avoid paying extra to pump gas.
After being hit with sanctions from the US (who was concerned the pipeline would make Europe more dependent on Russia for energy) causing some delays, construction on the pipeline finished last month, and Russia says they’re now ready to start pumping some gas through it.
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The thing is, it all still depends on the German regulator who has up to four months to complete the certification.
Of course, things could happen much quicker if gas prices keep rising and the crisis deepens.
And as I mentioned above, one of the reasons for the crunch is due to a decrease in Russian imports.
In August, commodity intelligence service ICIS noticed that as gas prices kept rising, Russian deliveries of piped natural gas to Europe had slowed in the weeks prior for no apparent reason.
‘Some analysts have suggested Gazprom, Russia’s state-owned gas giant, may be limiting its delivery of discretionary natural gas supply to Europe to support its case in starting flows via Nord Stream 2.
‘“That’s because Gazprom is readying itself for starting Nord Stream 2 and it is hoping to exert an element of leverage in terms of trying to make sure that when all the regulatory t’s get crossed and i’s get dotted, that that process is as swift as possible,” Tom Marzec-Manser, lead European gas analyst at ICIS, told CNBC via telephone.
‘“If there is less gas around than normal and the price is high then it may streamline that process,” he added.
‘When approached for comment, Gazprom referred CNBC to a statement published on its Telegram account Aug. 16. The company described August as “another ‘winter’ month on the gas market,” according to a translation.
‘An increased load on the gas supply system had coincided with the traditional season of scheduled preventive maintenance and preparation for the fall to winter period, “which cannot be paused,” Gazprom said.
‘“The practice of the last few years both in Russia and in Europe suggests that the winter period has also shifted to the spring month of March. Therefore, now, in the summer, the priority is to pump gas into underground storage facilities,” the company said. “This is also very well understood by our European colleagues.”’
It could be that Gazprom is struggling with supply. But it’s suspicious, to say the least…
But as I say, it’s been a mixture of things that have hit the gas supply along with supply disruptions. Once Nord Stream 2 opens for business, we are likely to see prices move down.
All in all, the way I see it is that higher gas prices make an even stronger case for the energy transition.
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