Analysis Energy
Unprecedented prices on the gas and electricity market within the EU
These are special times in the energy market. The spectacle is not in the oil market, although Brent crude breaks through the $75 a barrel for the first time since July, but in the electricity market. Day record after day record was broken last week and that line will be continued this week.
The electricity price on the EPEX Spot has not fallen below €125 per MWh this week. On Sunday September 12, the rate stood at €125,85 per MWh. On Wednesday that rose to €168,28 per MWh, again a new record. The price has fallen slightly again today (Friday 17 September), but remains unprecedentedly high at €161,84 per MWh. In recent years - so before the corona crisis - the electricity price usually fluctuated around or below €50 per MWh, with an occasional peak of €80 or more.
Coal remains important
Gas and coal record the highest prices in years. That still remains the basis under the electricity price. In addition, the supply of sustainable power from sun and wind has been disappointing due to unfavorable weather conditions in recent months and the international exchange of power due to maintenance work is not running smoothly everywhere. To make matters worse, a fire broke out in a substation between France and the UK last Wednesday, which means that one of the cables between the two countries will probably be out of service until March. Hourly prices in the UK even broke through, converted €1.170 per MWh. European gas stocks are also at their lowest level in 10 years, with winter just around the corner. Europe is in a battle with Asia to stock enough LNG (liquefied natural gas) for the winter season, but the supply is on the meager side.
Investment bank Goldman Sachs writes in a report published this week that record prices for gas and electricity in the European market could be a harbinger of what will happen to other commodities. "The dynamics in European energy prices provide a glimpse of what other commodity markets may have in store with increasing deficits and shrinking inventories."
There are sounds from other directions that a lot of air is currently being pumped into the European energy market. A lot of attention is paid to bad news, such as small stocks, while, for example, the progress and the near completion of the Nord Stream 2 gas pipeline are hardly mentioned in various analyses.
Expensive gas presents fertilizer factories with a dilemma
The high gas prices have an impact on another market that is important for agriculture. Several fertilizer manufacturers are taking measures because of the high gas prices. Natural gas is the main raw material in many nitrogen fertilizers.
The American CF Industries has temporarily closed 2 of the 4 production locations in the UK due to the high price and limited availability of gas in Europe, the company announced yesterday (Thurs. 16 September). The Cheshire plant produces 1 million tons of fertilizer. The other location that will close is Teesside, a factory that produces hydrogen in nitrogen products for industry in addition to fertilizer.
The Norwegian Yara, which also has a factory in Sluiskil, announced today (Friday 17 September) that it will reduce the production of ammonium by 40%. The company writes that it has been forced to take this step because the high gas price is cutting too deeply into production margins.
Oil breaks psychological barrier
The oil price is cautiously on the rise again. On Monday, September 13, a barrel of Brent crude stood at $73,63. Over the week, it climbed $2 a barrel to $75,63 a barrel on Wednesday before reaching $17 a barrel today (Friday, September 75,41).
The oil price is currently mainly supported by news from the US. Hurricane season has arrived and Ida and Nicholas have caused extensive damage to refineries along the Gulf of Mexico. This is now reflected, with some delay, in the stocks of crude oil and oil distillates (including petrol and diesel), which are starting to shrink.
Concerns about a possible new outbreak of the corona virus prevented the price from rising further, according to several analysts. The Chinese health agency reported 50 infections with the virus in the southern province of Fujian on Tuesday and Wednesday. As a result, investors have partly cashed in on the gains made earlier in the week, resulting in a slight fall in the price.
The diesel price is also at the highest level in more than a year and a half. Yesterday (Thursday 16 September) the €110 limit was removed and diesel cost €110,71 per 100 liters. It remains striking that the diesel price almost always rises when the oil price rises, but that declines are followed less quickly.
Jurphaas Lugtenburg
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
