Energy prices in Europe have hit records due to a shortage of natural gas and much lower than expected wind power output, the Wall Street Journal has reported. Some countries have even been forced to restart coal power plants to ensure enough electricity reaches consumers.
The UK is suffering the most from the drop in wind power output, caused by mild weather. The country, which prides itself on its wind capacity and whose Prime Minister last year said wind farms could power every home by 2030, produced less than 1 GW of wind power on several days. This compares with a generation capacity of 24 GW, according to ICIS senior energy economist Stefan Konstantinov.
Gas prices, meanwhile, are running at record highs because of the asynchrony in demand-spurred by the reopening of EU economies after lockdowns-and supply, which has been constrained because the EU is not the only region where economies are reopening after lockdowns.
Insider reported that wholesale gas prices in Europe had surged by as much as 450 percent over the past year, causing electricity prices in Germany and France to hit records, too.
"It took a lot of people by surprise," ICIS' Konstantinov told the Wall Street Journal about the gas crunch. "If this were to happen in winter when we've got significantly higher demand, then that presents a real issue for system stability."
Unfortunately, it could still happen in the winter, depending on whether it turns out to be mild or not.
"People are starting to throw the 'crisis' word around when it comes to Europe," John Kilduff from Again Capital told CNBC. "Europe is squarely behind the eight ball going into the winter season. It's going to put the focus on this commodity that's been overlooked for the last several years."
Gas reserves in Europe are 7.6 percent below the five-year average for this time of year. And there is little hope they will be replenished in time for the start of winter. On the other hand, as summer releases its grip on wind power, output from the North Sea should increase, alleviating some of the shortage.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More