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DW Monday: Interconnected Energy Markets

By October 14, 2013 April 1st, 2021 No Comments

DW MondayWhile Carbon Dioxide (CO2) emissions across the entire EU membership continue to fall, some key nations recorded a rise in 2012, something of an embarrassment in a region that claims to lead the world on low carbon issues. Delving into the EU’s comprehensive energy statistics one finds a mini-renaissance in the use of coal, a trend seen most clearly in the British and German power sectors. And what has been driving this? The influence of the US unconventional gas revolution – the sheer speed of which has led to a precipitous fall in North American natural gas prices. This, in turn, has made natural gas more attractive to power utilities, placing pressure on domestic coal prices. However, coal pricing is global in nature, whereas natural gas prices vary greatly by region.

With European utilities forced to rebalance their generating portfolios to meet tough EU 2020 emissions regulations, they have, over the past two decades, been substituting cleaner-burning natural gas for coal and adding renewable capacity, such as wind and solar. However, with European gas pricing relatively high and renewable energy having limitations with regards intermittency, low coal prices have proven sufficiently attractive to motivate change. Some European utilities have been bringing mothballed coal plants back into operation, and have been “sweating” older plants, which are scheduled to be closed down by the aforementioned emissions regulations. Despite the oft-publicised inefficiencies in global energy markets, this short-term example shows supply and demand fundamentals to be very much alive and well. An inconvenient truth at a time when the Intergovernmental Panel on Climate Change has stated that “Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions”.

Frank Wright, Douglas-Westwood Aberdeen
+44 1224 264972 or Frank.Wright@DouglasWestwood.com