European natural gas prices surged by 600% compared to September 2020, reaching over €90 per megawatt-hour in Dutch Title Transfer Facility (TTF) while coal prices increased by 265% in the API2 Rotterdam Coal Futures as the supply fell short of meeting the growing demand.
After a decline in global energy demand due to the lockdowns and restrictions against the spread of COVID-19 pandemic last year, the recovery of economies caused a shock of unexpected demand growth and supply shortage.
The first implications of the mismatch between supply and demand came in December last year in the Asian market as electricity and natural gas demand grew rapidly due to the colder weather conditions.
Asian countries, particularly Japan, increased its liquified natural gas (LNG) imports to meet the demand which brought the Japan Korean Marker (JKM) benchmark to $32 per million British thermal units (BTU) in January 2021, a dramatic jump from its levels which was down at around $1.8 per million BTU during the first half of 2020.
The LNG prices in Asia eased with the calmer weather during this year.
According to an analysis by the Oxford Institute for Energy Studies, LNG imports, excluding Europe, were 28 billion cubic meters higher in the 8 months of 2021 with a rise of 12% compared to the same period of 2019
The LNG imports, outside Europe, is likely to reach 35 to 40 billion cubic meters above its 2019 levels, a 10% rise.
However, after the heat waves pushed electricity and natural gas consumption in Europe and supply fell short of the demand, the European natural gas prices which stood at €12 per megawatt-hour in last September increased nearly seven-fold to over €90 in September this year.
The price surge in European gas markets swayed the interconnected global markets, which made JKM benchmark hit $30 per million BTU again while Henry Hub, US' main gas trading hub, price reached its highest level in the last seven years with over 150% jump, or $6 per million BTU.
- LNG and Russian gas flows to Europe down by around 30 billion cubic meters
Natural gas consumption in electricity generation grew due to increasing air conditioner usage and lower hydro and wind inventories around the globe and particularly in Europe.
Combined with fewer LNG and gas supplies from Russia to Europe and lower gas storage levels ahead of winter when natural gas consumption is expected to grow further, prices hit record levels.
According to the Oxford analysis, European pipeline imports from Russia in January-August 2019 totaled 118.3 billion cubic meters while in the same period in 2021, they totaled 99 billion cubic meters, a drop of 19.3 bcm
LNG imports into Europe and Turkey combined have fallen by 9 billion cubic meters over the eight months of 2021 compared to the same period of 2019 and this fall could be as much as 15 billion cubic meters even if more LNG comes to Europe in the last 4 months of this year than in 2019.
The growing share of natural gas in electricity generation in Europe and also in the UK drove the electricity prices to record levels, particularly in September.
According to Norway based Nord Pool, the electricity prices in the UK increased by 340% to €221 per megawatt-hours during the year, while in Germany the prices were up by 200%, in Italy by 220%, in Spain by 266% and in France by 185%.
Despite the emission reductions efforts and carbon pricing on electricity generation from coal, the demand for coal also saw an increase in Europe where coal futures surged by 265% reaching $200 per tonnes in the API2 Rotterdam Coal Futures.
- China out of power because of coal shortage
In China which meets around 60% of its electricity demand from coal burning electricity plants, the coal shortage led to country-wide power cuts as part of the government's precautions to manage the lack of power, leaving around 100 million people in dark.
China, the biggest coal consumer and producer in the world, is struggling to increase coal production and to whip up its imports to meet the demand amid the growing emissions.
Energy sector is responsible for 90% of China's global greenhouse gas emissions, according to International Energy Agency data.
By Nuran Erkul Kaya