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European energy prices are surging, creating ‘frightening’ uncertainty

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Sjoerd van der Wal | Getty Images News | Getty Images

LONDON — Europe is facing continued volatility in its wholesale gas markets, prompting concerns across the region that an energy crisis could be about to get even worse.

By 1 p.m. London on Wednesday, the Dutch TTF Hub’s front-month gas prices were around 5% lower than usual. On Wednesday, they reached 93.3 euros/megawatt-hour. According to New York’s Intercontinental Exchange, contracts for March delivery and April delivery went up by 5%.

According to data from Reuters, the European day-ahead cost rose to 94 Euros per megawatt hour. Although Wednesday’s activity was a long way from December’s peak at 182.3 euros, it still represented a substantial price increase from 2021 when prices dropped below 70 euro per megawatt hour.

According to Reuters, Wednesday saw the German baseload power price rise more than 50% on Wednesday, and their French counterparts rose 17% in early trade.

The increase in benchmark European gas prices came after they climbed 30% on Tuesday. This was due to concerns over a cold Winter, low gas inventories, and Russia restricting Europe’s supply.

In 2021, European wholesale prices for gas increased by 5% rose by more than 400%, setting new records.

Russia is at Russia’s mercy

On Wednesday, front-month natural gaz contracts in the U.K. rose almost 6% and contracts for April delivery increased more than 7 percent.

Meanwhile, day-ahead prices at the National Balancing Point, the U.K.’s benchmark for natural gas trading, rose more than 10% to around £2.25 per therm.   

Natural gas is a major energy source for the United Kingdom. More than 22 million homes are connected to the gas grid. The U.K. Continental Shelf is Britain’s biggest single gas source, accounting for around 48% total supply as of 2020. But, because the UCS has a mature supply, it must be supplemented from gas imports from overseas markets.

Businesses in the U.K. are paying a frightening price

Limits on the amount that suppliers can charge energy consumers in the UK are set by law. Price caps are also reviewed bi-monthly by government. This review will take place in February.

Talk at a press conference on TuesdayBoris Johnson, the prime minister, said that government is “not ruling it out” tax cuts to stabilize energy prices. However, he was skeptical about the efficiency of such a move.

Energy U.K. is a trade body told the BBC in DecemberIt predicted that energy costs in the country would rise up to half a percent in spring. Last year saw the demise of several British energy suppliers due to the soaring wholesale gas cost.

CNBC spoke with several small- and medium-sized U.K. businesses on Wednesday to say that rising energy costs would cause more problems for their companies.

Gillian Ferguson, Twisted Empire Bakes owner, stated via email, “I am truly terrified about rising fuel costs.” My provider has collapsed in the past [our new provider] has suggested we increase our monthly payment by £90 ($122). I’m a wholesale baker working from home with several ovens on the go — I’m not sure how long I will be able to keep swallowing the increases.”

Craig Bunting, the co-founder and CEO of Bear coffee chain, stated that his energy provider had declined to renew his power contract as his business was in the pandemic-ravaged hospitality segment. That means he is now paying “a stupid amount” for electricity.

Lucinda O’Reilly, Director of The International Trade Consultancy told CNBC that the rate at which energy prices rise is going to have disastrous consequences for British manufacturers. They already pay higher than their European counterparts and elsewhere in the world.

Colleague Box’s CEO Adam Bamford said that “the squeeze on small businesses has already been frightening” and added, “Many of us are stopping investments, while most suppliers are sending weekly price rise e-mails.” This could be the final straw for many of us.

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