Emerging From the Global Pandemic, Energy Inflation Assembles Pace as EU Gas, Power Rises to Records

5 mins read  Sealuminati TeamJuly 3, 2021

Emerging from the worldwide pandemic, energy inflation is picking up speed in Europe, with prices for everything reaching new highs, raising consumer fears about rising costs.

European natural gas power costs reached new highs. Energy demand is rising just as Europe prepares to expand and impose stricter emission limits on polluters, a move that is helping to drive up energy costs in the continent. Not only in Europe but Energy prices are also increasing in the US and Asia.

Europe is facing a major gas supply shortage with prices increasing nearly 90% this year. Russia is sending less gas to Europe via Ukraine, a major transit route, and Asia is snatching up shipments of the liquefied fuel as the heat rises.

Due to poor supply, “European gas prices have risen in recent weeks with Russia deferring deliveries to Western Europe despite high demand,” according to Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd.

Power prices in Spain have also risen, although the increases are only a “temporary situation,” according to Jose Bogas, CEO of Endesa SA. Dutch gas futures on the Title Transfer Facility hub rose as much as 7.3% to 37.15 euros an MWh, while German power for 2022 climbed as much as 3.6% to a record 74.80 euros per megawatt-hours on the EEX exchange.

According to Bjarne Schieldrop, chief commodities analyst at SEB AB, if the price of carbon rises, the gas must follow suit to ensure coal remains the cheapest feedstock for electricity generation.

“In various circumstances, coal-fired power is more appealing than gas-fired power.”

The price of coal for 2022 delivery in Europe added as much as 1.8% to $88.75 a metric ton. The benchmark carbon contract surged as much as 4% to a record of 58.64 euros a ton.

Before the Dutch market became the benchmark, Russian gas at the German border rose to about $16 per million British thermal units in 2008, according to monthly data from the International Monetary Fund.

In July, the Nord Stream 1 pipeline, which connects Russia and Germany directly, will be shut down for ten days, while the Yamal-Europe link will be closed from July 6 to 10.

The European Commission is proposing the world's largest carbon market's greatest reform for later this month.

Supplies are particularly scarce since Norway is undergoing extensive repair due to pandemic-related delays, and the cost of polluting in Europe has risen to an all-time high ahead of market reforms later this month. As a result, gas is becoming more expensive. Liquefied natural gas cargoes are also being purchased by Asia.

“The EU and the United Kingdom need to import LNG, and the cost of doing so is rising,” Schieldrop added. “This isn't just a European LNG and natural gas price increase; it's a global one.”