Bone-chilling winter from Berlin to Davos causes energy scramble
LONDON (Bloomberg) -- From the rivers criss-crossing eastern Europe to the Mediterranean ports of Greece and France, everyone is hunting for energy supplies.
Blizzards, gale force winds, arctic temperatures and river ice thicker than a house has left the stewards of the European energy business frenzied. Prices of natural gas, primarily a heating fuel, has soared to the highest in more than two years. Blackouts across Eastern Europe caused electricity rates to spike to record levels.
It’s chaotic, but yet familiar. While energy grid operators, producers and traders prepare for winter’s chill every year, they tend to rely on meteorological forecasts that sometimes turn out to be dead wrong. So when a winter that’s expected to be mild develops into an extended deep freeze, a mad dash to meet demand ensues.
“Those who became sure that such a cold spell was unlikely given the overall trend in global warming are like those who get drowned in a stream that averages three inches deep,” said Zach Allen, president of Pan Eurasian Enterprises, an industry consultant in Rhode Island. “The Black Swan is your constant companion.”
January will be one of Europe’s coldest months of the past five years and the chill will linger for at least another two weeks, according to Giacomo Masato, a meteorologist at energy broker Marex Spectron Group Ltd. in London.
“The more you go inland, the more likely it will be that even maximum temperatures will be around zero,” Masato said. “That’s cold.”
Waste of Time
When Andreas Speer, a commodities analyst at Bayerische Landesbank in Munich, last month looked at the long-range weather forecasts for January, he saw mild weather.
“That’s not what I see when I look out the window,” he said on Friday, referring to winds of 110 km an hour (68 miles per hour) and freezing temperatures. “Models are a waste of time and money beyond three weeks. The cold snap caught people by surprise.”
For Europe’s natural gas traders, this winter was supposed to be boring, with a glut damping any potential for wild price swings. Norway and Russia exported at record levels, while the increasingly global liquefied natural gas trade gave utilities a cushion. By September, prices from gas to power were still near six-year lows.
But gas ended the year with its biggest bull run in a decade as Centrica Plc delayed the return of the UK’s biggest gas store by more than two months after the start of the heating season. Long-term reserves in the region’s biggest gas market are now only about half of normal.
Emergency Evacuations
The scramble for supplies intensified by the end of last year as temperatures plunged. In Turkey, the state-owned gas grid operator asked private power plants to reduce gas demand by 90% as Istanbul got covered in snow. France issued its strongest warning that the southeast part of the country had an urgent need for extra gas. Bulgaria, Romania and Serbia last week deployed emergency services to evacuate remote villages where people were stranded without electricity or heat.
As the world’s power brokers gather in Davos, Switzerland, this week, they’ll need to wrap up warm as a low pressure system is forecast to send temperatures to below minus 20 Celsius (minus 4 Fahrenheit). The country may get its lowest seasonal average in a decade, with a mean of minus 8 Celsius across the country.
France will be 6 to 8 degrees Celsius below normal by the end of next week and the grid may implement measures to reduce power demand from Tuesday. Power demand is forecast just shy of its 2012 record on Thursday. Electricite de France SA was granted a two-week a delay on safety checks for the Tricastin-2 nuclear reactor in France because of the freeze and has asked for a reprieve on another reactor.
Asia Demand
To make matters worse, countries are struggling to acquire extra LNG as Asian buyers are willing to pay a higher price to meet demand there. Coal can sometimes be used as an alternative. But for Romania stocks are nearly gone. Even the barges carrying oil are getting stuck in icy rivers they can normally plough through.
“We were kind of expecting from around zero to below average temperatures, but we weren’t expecting it to become this cold,” said Masato. “The extent of the cold and the persistence of this anomalous weather condition was certainly extreme.”
February is threatening a rerun of this month, even if milder weather is forecast, according to BayernLB’s Speer. With a bit more anticipation by traders, more LNG tankers might be in the correct position to supply Europe, he said.
“I’m nervous,” because prices may surge again, he said.
