The British energy industry is headed for a big shakeup as wholesale natural gas prices have been climbing since the beginning of this year. The latest gas price at the Dutch TTF hub, a European benchmark, gained on Monday to trade at 73.150 euros ($85.69) per megawatt-hour, close to the record high seen last week.
The benchmark has risen a whopping 250 percent since January.
British Business Secretary Kwasi Kwarteng felt it necessary to assure the British public that there would be gas to heat their homes this winter.
“There is absolutely no question of the lights going out or people being unable to heat their homes,” Kwarteng told the House of Commons. “There will be no three-day working weeks or a throwback to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.”
As prices surge, the British government is considering state-backed loans to large utilities that take on customers from smaller energy companies that have collapsed and it may subsidize fertilizer production, according to a U.K. official, following the temporary closure in the U.K. of two fertilizer plants, which use gas as a feedstock,
Kwasi Kwarteng, the country’s business minister, met with senior figures from Britain’s energy suppliers, including Électricité de France SA and Royal Dutch Shell PLC, over the weekend and on Monday, a spokeswoman said.
The higher prices have already led to four British energy suppliers, which buy wholesale and supply consumers, going out of business, according to Ofgem, the country’s energy regulator.
The U.S. is in very good shape energy-wise for the winter, and Europe’s problems may even give a shot in the arm to the beleaguered American coal industry.
The U.S. is shipping out an order of magnitude more than it did even a few years ago. During the first half of the year, the U.S. has exported roughly 10% of its natural-gas production and continues to export at near full capacity. Before opening its first export terminal in the Lower 48 states in 2016, the U.S. exported less than 1% of its natural gas.
Coal exports are running high too. The U.S. exported 52.5% more coal in the second quarter than it did a year earlier, according to S&P Global Market Intelligence.
So what’s going on? What’s happening to world energy markets in nations not shielded by being energy independent is what’s known as a “transition premium.” Transitioning to renewable energy sources is going to cost us.
“I have talked about a new premium that is emerging in the energy markets that I term the transition premium,” Barkindo told CNBC’s Dan Murphy at the Gastech conference in Dubai.
The long-time head of the oil cartel criticized what he believed was an overly emotional approach to energy policies and climate change, though he did not point a finger at specifically who was to blame for what he described as a “misrepresentation of facts.”
Barkindo contended that there was “distortion of facts and the science, and the misrepresentation of these facts in the conversation, which is not healthy, because climate change and the energy transition are supposed to be guided by the science.”
Obviously, Barkindo is not a disinterested party. But he makes a valid point. So much of what goes into energy pricing is a perception of what’s happening in the world. War, tensions, even weather can affect the price of energy. Now, the perception that energy is going to get much more expensive because of climate change mitigation policies by governments has caused the markets to flinch.
We can expect this kind of volatility until the market shakeout is complete.