Energy crisis in Europe: gas price hits record 100 euros due to pressure from China

European gas soared to a record 100 euros ($ 115) after China will order its state-owned energy companies to secure supplies for this winter at all costs, according to sources Bloomberg.

The decision of Xi Jinping’s regime is exacerbating the global struggle for energy supply, in a move that threatens to derail the economic recovery. In volatile trading, benchmark futures gained up to 2.3% this Friday before backing off.

Beijing is stepping up battle for liquefied natural gas and coal cargoes, just as flows reaching Germany via a key Russian gas pipeline have plummeted.

Energy prices are rising from the United States to Europe and Asia as the economy recovers from the pandemic and people return to their offices. Europe is struggling to get enough gas and coal for the boreal winter, and the rise in prices is forcing certain industrial giants, producers of fertilizers CF Industries up to Yara International ASA and the chemical giant BASF SE, close factories or reduce production.

“The volatility of transactions shows that no one really knows how far gas can go, but there is no doubt that a wild race awaits us.”, noted Nick van kouteren, main operator of PZEM, a Dutch energy company. “The question will be: Where will there be destruction of demand? If then we see that governments intervene and subsidize gas prices, as France announced yesterday, there is no incentive to lower demand, ”he asked.

Dutch gas futures have moved to 100 euros per megawatt hour, before falling 0.7% to 97 euros at 1:05 p.m. in Amsterdam. Prices hovered between gains and losses, with traders considering the possibility of demand decreases as more factories close or reduce production.

European warehouses are full in just under 75%, the lowest level for this time of year for more than a decade. Stock withdrawals usually begin at the end of the month, depending on the weather. Temperatures in northwestern Europe are expected to remain within seasonal norms in October so far.

Flows from the main supplier Russia to Mallnow in Germany via the key Yamal-Europe pipeline also declined just at the start of the heating season. At an auction held on Thursday, no additional pipeline capacity was reserved to deliver fuel to the Mallnow compressor station the next day.

“Gas can now rise as much as necessary to eliminate demand”, noted Andreas Gandolfo, leader of the European energy team of BloombergNEF. “For some European industries, gas has become too expensive. For some, including us, who have gas heating at home, it can probably go much higher before there is a decision to turn off, ”he added.

The possibility of more industrial closures in Europe could also slow the rise in carbon futures in Europe. Some of the companies that cut production or close factories use a lot of energy and have to use carbon permits to cover their emissions. The slowdown could lead them to sell their emission rights, according to Trevor Sikorski, head of natural gas and energy transition at London-based consultancy Energy Aspects.

Coal prices rose 2.8% to € 63.48 per metric tonne, while German electricity gained 3.8% to € 134.20 per megawatt hour.

In Asia, the price of liquefied natural gas reached a record high of $ 34.47 per million British thermal units. Both in Asia and Europe, the cost is about $ 190 per barrel of equivalent crude.

“In the long term, prices are of course insufficiently high and we expect a gradual normalization next year”, noted Oystein Kalleklev, CEO of Flex LNG Ltd. “But with empty stocks there will be a resupply struggle next summer, so it will take a little longer for the market to rebalance.”

For its part, The French government has announced that it will block any further increases in regulated natural gas tariffs for households and reduce electricity taxes to allay discontent over rising prices on the eve of the presidential elections.

“We are going to introduce what I would call a tariff shield for gas and electricity”declared the Gallic Prime Minister, Jean Castex, on the television network TF1 Thursday evening, days after the announcement 580 million euros ($ 672 million) in special grants to help poor households with skyrocketing energy bills.

Any further increase in gas tariffs, after rising 12.6% from Friday, will be stalled until prices start to drop in the spring, protecting more than 5 million households with rate contracts. variable.said Castex. The French government has also reduce taxes on electricity prices, limiting the expected increase in residential electricity rates to 4% in February 2022added. It also seeks to help gas suppliers by freezing costs.

With the onset of winter, gas and electricity prices are breaking records as European economies recover from the pandemic. Governments in the region are implementing various measures to help households cope with rising electricity bills. Greece has pledged subsidies and suggested the creation of a carbon market fund, while Spain wants to impose a tax on power companies.

For the French president, Emmanuel Macron, the timing of the crisis could not be worse. The campaign to replace him has started in earnest, and he must make a careful balance. He must reach out to those who took part in massive protests against social inequality in his second year in office, while wooing right-wing voters concerned about rising public spending.

Finance Minister Bruno Le Maire ruled out lower energy taxes, which would have lasting effects, in favor of temporary measures to help the most vulnerable.

If the French government is betting that the price increase is only temporary, it is also exploring ways to help energy-dependent businesses and you’re subsidizing renovations that make homes more energy efficient.

France will help gas suppliers with the monetary impact of the price cap, Castex said, without elaborating. He said experts predict gasoline prices will fall “sharply” again by the Boreal Spring, and he announced that the expected decrease will not be fully passed on to consumers to compensate for the freezing of regulated tariffs.

This will reassure the investors of Engie SA “on the neutrality in value of the intervention, which is limited to cutting the winter peak of invoices,” analysts from JPMorgan Chase & Co. said in a note. In the case of Electricité de France SA (EDF), controlled by the State, the Government will partly offset the increase in electricity bills with tax compensation, which is “good news for EDF investors. “said the bank.

The government will not tax EDF’s exceptional profits linked to the rise in electricity prices, said the Minister of Industry on Friday, Agnes Pannier Runacher, on the radio CMR. These profits “will be reinvested”, perhaps in future nuclear reactors or renewable energies, he said. “We are all owners of EDF. When EDF makes a profit, it is beneficial for all French people “, since it invests for the country’s “energy sovereignty”.

Shares of Engie, France’s largest gas supplier, rose 1.9%, trading up 1.4% at 11:21 am Paris time. EDF is up 4.3%.

Engie said in a statement that “Will engage constructively with the regulator to find solutions” that allow you to “support your customers while focusing on minimizing any impact on financial performance”.

(With information from Bloomberg)

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