High natural gas prices may strain European economies
— As the world struggles to recover from the pandemic, soaring natural gas prices threaten to become a drag on the economies of Europe and elsewhere. Wholesale prices for the fuel are at their highest in years — nearly five times where they were at this time in 2019, before people started falling ill with the coronavirus.
The high costs feed into electric power prices and have begun showing up on utility bills, weighing on consumers whose personal finances have already been strained by the pandemic. The price jumps are unusual because demand is typically relatively low in the warmer summer months, raising alarms about the prospects for further increases when demand jumps in the winter.
Spanish households are paying roughly 40 percent more than what they paid for electriced ity a year ago as the wholesale price has more than doubled, prompting angry protests against utility companies.
“The electricity price hike has created a lot of indignation, and this is of course moving onto the streets,” said María Campuzano, spokesperson for the Alliance against Energy Poverty, a Spanish association that helps people struggling to pay energy bills.
The pain is being felt across Europe, where gas is used for home heating and cooking as well as electric power generation. Citing record natural gas prices, Britain’s energy regulatory agency, Ofgem, recently gave utilities a green light to increase the ceiling on energy bills for millions of households paying standard rates by about 12 percent, to $1,763 a year.
Several trends are to blame for soaring prices, including a resurgence of global demand after pandemic lockdowns, led by China, and a European cold snap in the latter part of winter this year that drained storage levels. The higher-than-expect LONDON demand and crimped supply are “a perfect storm,” said Marco Alverà, chief executive of Snam, a large gas company in Milan.
The worry is that if Europe has a cold winter, prices could climb further, possibly forcing some factories to temporarily shut down.
“If it is cold, then we’re in trouble,” Alverà said.
The jump has prompted some to call for an acceleration of the shift from fossil fuels to clean domestic energy sources such as wind and solar power to free consumers from being at the mercy of global commodity markets.
“The reality is we need to switch to renewables faster,” said Greg Jackson, CEO of Octopus Energy, a British utility.
On the other hand, the turbulence in prices may also be a harbinger of volatility if energy companies begin to give up on fossil fuel production before renewable sources are ready to pick up the slack, analysts say. In addition, the closure of coalfired generating plants in Britain and other countries has reduced flexibility in the system, Alverà said.
Gas prices in the U.S. have risen as well, but they are only around a quarter of those being paid in Europe. The U.S. has a big price advantage over Europe because of its large domestic supply of relatively cheap gas from shale drilling and other activities. Europe must import most of its gas.
The immediate worry for markets in Europe is that suppliers have not followed their usual practice and used the summer months to fill storage chambers with cheap gas that will be used during the winter, when cold weather more than doubles the consumption of gas in countries such as Britain and Germany.