Sounding the wake-up call of the global energy crisis
Weng Donghui
The structural problems of natural gas supply and the impact of climate have caused European electricity prices to soar. Consumer panic in various countries may deepen with the advent of the severe winter.
Some analysts believe that the power crisis in Europe may continue to spread, sounding the alarm for the global energy crisis.
Europeans are almost out of power!
This is by no means alarmist.
The structural problems of natural gas supply and the impact of climate have caused European electricity prices to soar. Consumer panic in various countries may deepen with the advent of the severe winter.
Some analysts believe that the power crisis in Europe may continue to spread, sounding the alarm for the global energy crisis.
In the recent past, electricity prices across Europe have hit record highs. The market changes are jaw-dropping, and the blows are sudden. Not only are consumers unacceptable, but governments around the world are also caught off guard.
The numbers are shocking.
In Spain and Portugal, the average wholesale electricity price at the beginning of September was about three times the average price six months ago, at 175 euros per MWh; the Dutch Title Transfer Center (TTF) wholesale electricity price was 74.15 euros per MWh, higher than in March 4 times; the UK electricity price has hit a record high of 183.84 euros, only more expensive, not the most expensive.
Since nearly half of the electricity in the UK relies on natural gas, energy-intensive industries such as steel and chemical industries can no longer afford high electricity prices; two other fertilizer companies plan to close their plants in the winter, and the closure or production cuts of the fertilizer plants will trigger a series of chain reactions , And even endanger the production of the food industry.
The crisis is imminent.
The EU ministerial meeting held in late September specifically discussed the soaring prices of natural gas and electricity to seek countermeasures.
The ministers agreed that the current "critical juncture" was at a "critical juncture" and attributed the abnormality of the 280% increase in natural gas prices this year to a series of factors, such as low natural gas storage levels, limited supply in Russia, low renewable energy production, and large quantities under inflation. Commodity cycle, etc.
It is estimated that the European Commission will not be able to come up with an effective response plan for a while.
The governments of individual member states of the European Union have long been unable to restrain themselves and are urgently formulating measures to protect consumers.
Spain subsidizes consumers by lowering electricity tariffs and recovering funds from public utility companies; France provides energy subsidies and tax reductions for poorer households; Italy and Greece are considering subsidies or setting price caps to protect their citizens. Affected by the rising cost of electricity, it also guarantees the normal operation of the public sector.
There are inherent reasons for the sudden changes in the European power market.
At present, EU countries trade electricity in the form of spot on the wholesale market. According to the marginal model, this means that the final electricity price is linked to the price of the most expensive fuel needed to meet the expected demand.
When the expected demand exceeds the supply that clean energy can generate, expensive fossil fuels must be used instead.
This is why the soaring cost of natural gas has had a serious impact on the European power market.
It is not clear how much of the price increase is due to the gap in supply and demand, and how much is due to tight market conditions.
Low inventory is a real problem.
Statistics show that the current level of natural gas inventories in Europe has reached a 10-year low, which is 25% lower than the average level of the past five years.
According to Goldman Sachs forecasts, crude oil prices may reach US$90 per barrel this winter, while prices of natural gas and thermal coal will rise.
Especially in Europe and Africa, due to low natural gas inventories, power shortages in winter are unavoidable.
Obviously, the price of natural gas continues to soar in the current very tight market atmosphere and is the "culprit" of the European power crisis.
The Chicago Mercantile Exchange Henry Hub natural gas futures and the Dutch Title Transfer Center (TTF) natural gas futures are the world's two main natural gas pricing benchmarks. At present, the October contract prices of both have reached the highest point of the year.
Data shows that natural gas prices in Asia have skyrocketed 6 times in the past year, Europe has risen 10 times in 14 months, and prices in the United States have reached their highest point in 10 years.
Compared with coal and oil, natural gas is relatively easy to develop and has large reserves. It has always been one of the cheapest energy sources in the world.
This year, uncharacteristically, the price of natural gas rose sharply in the summer. The main reason is that supply is still in short supply.
On the supply side, in 2020, a total of 3.85 trillion cubic meters of natural gas will be produced globally, a decrease of 3.3% from 2019.
Except for Qatar, which is promoting the expansion of large-scale natural gas export projects, almost no new LNG export projects have been approved in the world.
In the past few years, the global LNG supply has increased by 30 million to 40 million tons per year, but only about 10 million tons will increase from 2020 to 2021, and there will be a supply gap.
In terms of demand, the International Energy Agency predicts that natural gas demand will continue to grow in the next few years. By 2024, global natural gas demand may increase to 4.3 trillion cubic meters. The increase in natural gas consumption in the Asia-Pacific region is equivalent to 43% of the total global increase. %.
Data show that from January to August this year, Russia's natural gas exports to major Asian countries increased by 19%.
The problem is that natural gas is an important part of Europe's energy structure and is heavily dependent on Russian supplies.
This dependence becomes a big problem in most countries when prices are high. After all, people's livelihood is the biggest politics, which is about votes and the personal future of politicians.
Some members of the European Parliament jumped out early, accusing Russia of deliberately reducing gas transmission, which is behind the price increase.
It's not surprising that Russia is "throwing the pot".
Even Americans on the other side of the Atlantic warned the Russians not to "manipulate" prices.
The US Secretary of Energy said publicly that we hope everyone will pay attention to manipulating natural gas prices by hoarding or failing to provide sufficient supply.
The International Energy Agency is also calling on Russia to increase natural gas exports to help cope with the crisis and prepare for the upcoming winter heating.
Some analysts also believe that the reduction in Russian gas flow through Ukraine is Moscow's attempt to force Germany to approve the launch of Beixi-2 as soon as possible.
It is estimated that the pipeline certification will take 4 months.
The International Energy Agency believes that in a globalized world, energy supply problems may be widespread and long-term, especially in the context of various emergencies that cause damage to the supply chain and the reduction of fossil fuel investment in response to climate change.
In contrast, countries with self-sufficiency in energy or stable supply will have a great advantage.
This is why the U.S. Industrial Energy Consumers Association recently requested the Department of Energy to restrict the export of liquefied natural gas. The purpose is to protect the energy supply of the domestic fertilizer industry, food industry and other industries under the banner of American priority.
The biggest question is whether the European electricity price spike is a temporary phenomenon related to a series of one-off events, or is it a sign of deeper problems as the EU goes through the energy transition?
The reality is that renewable energy cannot yet fill the gap in energy demand.
As of 2020, European renewable energy has generated 38% of the EU's electricity, surpassing fossil fuels for the first time in history, becoming Europe's main source of electricity.
However, even in the most favorable weather conditions, wind and solar energy cannot generate enough electricity to meet 100% of the annual demand.
There is an old saying in economics that if what you want is scarce, you tax it.
For many years, the European Union has introduced carbon taxes to curb the production of natural gas.
The power crisis may be the price Europe paid for the "greening" of energy.
Just as a study by Bruegel, a major EU think tank, shows that the EU’s energy supply and demand balance depends on the phasing out of fossil fuels and the gradual introduction of green energy, and the process will not be too calm.
Europe’s approach to promoting greener energy is correct, but you cannot put the car in front of the horse.
In the short to medium term, EU countries will more or less continue to face an energy crisis before large-scale batteries for storing renewable energy are developed.
Interestingly, at the recent World Natural Gas Technology Conference, the leaders of Qatar and OPEC, the world’s largest LNG exporters, both stated that the increase in natural gas prices is the market’s response to the development of renewable energy, and they are eager to keep fossil fuels underground. In the process, emotions have surpassed the facts.
Experts also believe that predictable investment in the oil and gas sector is still needed in the energy transition process to meet the growing global energy demand.
The energy crisis of the 1970s caused terrible consequences of high inflation and low growth in the global economy.
In the current world economy is gradually recovering from the epidemic, market demand is slowly recovering, monetary and fiscal stimulus policies are still loose, and the gap between the rich and the poor is increasing. Any drastic turbulence in the energy market may trigger a global energy crisis. Properly respond to ensure the safety, effectiveness and stability of energy supply.