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With natural gas storage levels at their lowest for 10 years just before the winter heating season, Europe faces tough choices among its limited range of options to mitigate the gas crisis. Governments across Europe are committed to protecting the most vulnerable consumers, as soaring gas and electricity prices is a hot potato that no ruling party or coalition wants to meet. But the surge in energy prices is here, and it could get worse as we enter the heating season in the northern hemisphere between November and March.
European governments have already announced measures to protect consumers from energy price spikes, including through the energy price cap that has been and will continue to be in place in the UK and a temporary tax cut on electricity prices in Spain.
Protecting certain consumer groups from price hikes, however, would put more pressure on other gas and electricity consumers, including industry, according to Reuters columnist John Kemp. Remarks. If European countries allowed gas and energy prices to rise moderately from already record levels, it would trigger a destruction of demand, easing the tight gas market, according to Kemp.
However, many European leaders are unwilling to let consumers (voters) feel the heat of soaring energy bills this winter.
In addition, the destruction of demand has already started. But this does not come from household energy consumption, but from electricity producers and heavy industry.
Utilities are using more coal and other fuels, where possible, to generate electricity at the expense of natural gas. The increased use of coal-fired electricity in the power mix is in direct conflict with the ambitions of the European Union (EU) and the UK to achieve net zero emissions by 2050.
Sweden, one of the EU members with the greenest electric mix in the block – with hydropower, nuclear and wind power dominating – saw the Karlshamn oil fired power station in operation in recent weeks due to record electricity prices, although there is no shortage of electricity in the country.
The United Kingdom, which promised phase out coal-fired electricity generation by October 2024, had light up earlier this month a former coal-fired power plant that was on standby to meet its demand for electricity.
So far this month, the share of coal in the UK power mix, although below 3%, has more than doubled from the share below 1% in September 2020.
UK power company Drax may have its last two coal-fired power plants in the country operating beyond the 2022 deadline that he had decided to shut down if the government asked him to keep them operational amid the energy crisis, said Drax CEO Will Gardiner. Financial Time this week.
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The destruction of demand in industry is also underway. Industries across Europe are reduce operations due to record prices for natural gas and electricity, threatening to deal a blow to the post-COVID recovery.
Fertilizer and ammonia production in Europe has been curtailed as “European downstream gas markets suffered further financial difficulties with new spot gas records” this week, Ben Samuel at Independent Cargo Intelligence Services (CIHI) Noted Thursday.
CF Industries, manufacturer of hydrogen and nitrogen products, noted last week it shut down operations at its Billingham and Ince manufacturing complexes in the UK due to high natural gas prices.
The Billingham plant produces carbon dioxide (CO2), a critical supply for the food industry. Thus, the British government obtained a short-term contract with the company, which produces 60 percent of the UK’s CO2, to ensure the continuous supply of businesses.
“Industrial closures will reduce demand, which will further limit price increases. Switching from gas to coal in the European electricity mix also reduces demand for gas, but this can then be offset by higher emissions prices that encourage a switch back to gas, ”said Alex Froley of CIHI. wrote this week.
The gas crisis and soaring prices have shown once again that Europe – and all those pushing for “more fossil fuels as soon as possible” – should take into account market realities before indulging in “100% renewable energy” fantasies.
The International Energy Agency (IEA) – which has suggested that a net-zero world by 2050 would not need new oil and gas investment after 2021 –noted this week, commenting on soaring gas and electricity prices:
“The links between the electricity and gas markets are not going away anytime soon. Gas today remains an important tool for balancing electricity markets in many regions.
By Tsvetana Paraskova for OilUSD
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