Gas and coal prices in Europe have broken all historical records

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Gas and coal prices in Europe have broken all historical records. On October 6, gas rose in price to $ 1,962 per thousand cubic meters, but then prices fell to $ 1,300, which is still almost five times higher than the price of Gazprom under long-term contracts. The coal used to generate electricity costs more than $ 260 per ton. Oil is slowly but surely approaching the price peak, storming the values ​​at which the quotes were in 2014, and is likely to continue to rise in price.

 

 

There is panic on the European energy market, which is no longer even hidden in the European Union. There are proposals to freeze energy prices and to investigate the reasons for the rapid rise in gas prices. The EU is looking for ways out of the crisis, but there are not so many of them. Internal reserves of energy resources will not be enough to pass the winter, especially if it turns out to be cold. The only hope remains for exporters, but their possibilities are limited by logistics and the laws of the EU itself.

Moreover, gas at such prices has lost all attractiveness here as a raw material for generating electricity. Coal has become the most profitable for its production, despite the high quotas for CO2 emissions – over $ 60 per ton. Coal prices in Europe have already surpassed those in Asia. It is time to say that the European market will begin to delay part of the coal supplies intended for the countries of the Asia-Pacific region (APR). But not everything is so simple, and it is unlikely that Europe will be able to cope with the crisis at the expense of the “dirtiest fuel”.

The Ministry of Energy told RG that so far no one from Europe has approached them with a request to increase the supply of coal. Earlier, the ministry said that it expects to maintain coal exports to Europe this year at the level of 2020 (about 48 million tons). In the first half of the year, 22.5 million tons of coal were shipped to Europe, 2.4% more than in the same period last year.

For Russian coal, the priority is given to the eastern direction of export. It is still limited by the capacity of the Baikal-Amur Mainline and the Trans-Siberian Railway, but they are trying to load it to the maximum. Our infrastructure makes it possible to increase supplies to the West, but, according to experts, by no more than 10-15 million tons. For Europe, this will not be enough, even despite the massive destruction of coal-fired power plants, for example in the UK.

“So far, no one from Europe has asked to increase coal supplies to Russia.”

In addition to Russia, Ukraine could increase the supply of coal to Europe, but for this it needs to normalize the situation in the Donbass (the main area of ​​coal mining in the country), says Artem Tuzov, executive director of the capital market department at Univer Capital. In theory, Australia could start supplying coal to Europe, which has problems exporting coal to China. But that’s if you don’t look at the globe. Sailing to a neighboring mainland or halfway across the world are different shipping costs. However, if coal prices rise even more, this will be possible, Tuzov specified.

The rest of the major coal exporters – Indonesia, USA, South Africa – are also unlikely to trade Asian and African markets for Europe due to high shipping costs. The countries of the Old World could increase their own coal production, there are deposits in Germany, Poland, Great Britain and other countries, but most of the mines have been mothballed by now. The coal industry continues to develop only in Poland. Their capacities are enough only for incomplete supply of the domestic market. As a result, it turns out that it will not be possible to save Europe from the energy crisis at the expense of coal.

Europe stubbornly blames the calm in the North Sea for the crisis, which halved the volume of electricity generated by wind power generation, and Gazprom, which during 2021 did not increase gas supplies through Ukraine. But the volume of gas exports to Europe from Russia for nine months, compared to last year, increased by 15.3% – 145.8 billion cubic meters – and are close to the maximum in 2018 (149.2 billion cubic meters).

According to Vladimir Bragin, director for analysis of financial markets and macroeconomics at Alfa Capital, the European energy crisis was caused by several factors, but the most obvious is the recovery of the EU economy after the pandemic, which increased the demand for energy in general. Also, a very important role was played by: the systematic destruction of the nuclear energy, the accelerated rejection of “dirty” energy sources (coal, fuel oil) in 2020, when the demand for it dropped sharply against the backdrop of a downturn in the economy, the expert notes.

From the point of view of the head of the National Energy Security Fund Konstantin Simonov, Europe’s mistake is that they staked on “green energy” and exchange gas trading, abandoning long-term contracts, and at the same time destroyed the coal industry. If now Europe had reserve capacity for coal-fired generation, there would be no crisis, the expert notes.

Large exporters of coal – Indonesia, USA, South Africa – are unlikely to exchange the Asian and African markets for Europe due to the high cost of delivery

Europeans do not agree with this. The deputy head of the European Commission, Frans Timmermans, has already stated that the energy crisis will not force the European Union to deviate from the climate agenda and its energy policy and will continue to develop generation based on wind and sun. “EU climate regulations are set in stone,” Timmermans said, noting that EU energy demand has peaked in 25 years.

From Bragin’s point of view, Europe will have to change its attitude towards renewable energy sources (RES). At least in terms of capacity reserve. If you rely on renewable energy sources, in particular the sun and wind, then it is necessary to form capacities with a large margin so that the deterioration of weather conditions does not lead to a critical deficit. Perhaps the attitude towards nuclear energy will also change, the expert suggested.

Everyone is now worried about how long the period of record prices for energy raw materials in Europe can drag on. Paradoxically, now almost nothing depends on the actions of the European government. The launch of Nord Stream 2 this year will somewhat ease the tension on the market, but it will not be able to seriously reduce the gas deficit in the EU.

Now everything depends on the weather and the news background, which is able to calm the panic in the market. Stronger winds or higher temperatures can also help reduce gas demand. But winter is ahead, and if it turns out to be harsh in the countries of the Old World, quotations of oil, gas and coal may continue to break historical records.

 

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