EU governments stepping in as energy prices surge
Power costs skyrocketing as economies emerge from pandemic, boosting demand
A relentless rally in Europe’s energy prices is piling up pressure on governments, with Spain and Greece taking steps to cushion the blow for consumers.
Gas and power prices extended gains in Europe on Tuesday, reaching records in countries including Germany, France, Spain and the U.K. Spain moved to ease the cost of energy bills late Monday, and France said it was considering it while Greece announced over the weekend a subsidy for all households.
Energy prices are skyrocketing as economies emerge from the pandemic — boosting demand just as supplies are falling short. Gas and power prices are breaking records day after day even in the mild weather, and there’s no relief in sight. Italian Ecological Transition Minister Roberto Cingolani said on Monday that he expects power prices to increase by 40 per cent in third quarter.
“Rising commodity prices are likely to hit consumer and industrial bills this winter,” said John Musk, analyst at RBC Europe Ltd. “However there may be some risk of political interference to prevent such a significant bill rise for consumers.”
The gains are fuelling concerns about inflation. Consumer prices in Spain rose 3.3 per cent in August, an increase that was largely driven by a surge in power prices, according to National Statistics Institute data. In Germany, inflation jumped 3.4 per cent in August to the highest level since at least 2008. Swedish inflation also topped expectations on energy prices.
Energy bills are expected to go up by 20 per cent for households across Europe, according to Citigroup Inc. That’s fuelling expectations that more governments will step in. There’s a risk that higher prices derail the recovery.
France is considering easing the cost of rising energy bills for consumers, Finance Minister Bruno Le Maire said on LCI television Monday. It’s already handing out vouchers — so-called energy checks — worth about 150 euros ($224) per year to nearly 5.5 million poor households.
“It can be an efficient tool to protect the French against the rise in energy prices,” Le Maire said. “We’ll see in coming weeks whether we need to use this energy check.”
Gas prices have surged as Europe is running out of time to refill inventories before the start of the heating season in about a month. Storage sites are at their lowest level in more than a decade, while supplies from top suppliers Russia and Norway remain limited. Prices will still need to rise further if the continent is to attract cargoes of liquefied natural gas away from Asia.
LNG supply concerns mounted as Hurricane Nicholas made landfall in Texas, threatening to disrupt exports. The ports of Freeport and Corpus Christi closed to inbound ships on Monday, though the facilities have vessels loading LNG at the moment, shiptracking data show. U.S. gas deliveries to liquefaction terminals are currently normal, a Bloomberg model shows.
Rising gas prices are lifting the cost of producing electricity, with both German and French power prices for next year rising to records. Spanish dayahead prices also reached an all-time high on Tuesday. While some utilities have turned to coal, supplies of the dirtiest of fossil fuels are also running short. Stockpiles at European ports are at their lowest level since 2016 for this time of year, data from Argus Media showed.