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EUROPE’S ENERGY PRICE SHOCK

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by Capitalist Exploits
Wednesday, Sep 22, 2021 - 14:02

By the time the decade is out energy security will be THE popular narrative, and instead of UN climate summits there will be energy security summits.

Yes, this is certainly shaping up to be the case as energy prices are ramping up in Europe and around the globe:

From the article:

Europe is facing an energy price shock as the cost of natural gas and electricity surges to record levels.

A gas supply crunch is boosting the cost of producing power from the U.K. to Germany just as businesses reopen and people return to the office, increasing demand. Rising prices are fueling inflation and threatening to stall the economic recovery as energy-intensive industries from fertilizer to steel may need to curb output.

Prices are rallying even though it’s still summer, when demand is usually low, setting the stage for a difficult winter. Utilities are hiking prices for consumers at the same time as everything from food to transport costs are also rising, a headache for politicians trying to garner support for the energy transition.

Take a look at French 1-year forward baseload power prices — a crucial benchmark rate and a record price. And this is before winter has hit.

I know, I know. We promised you week after week here this would happen, so I’ll admit to some level of satisfaction, but let’s leave out the obvious and consider the second order consequences here. They are this. Energy prices rising are inflationary.

This is why, when we see pundits suggesting to us that inflation is “transitory,” we know they’re either lying, stupid, or both, because unless energy becomes cheaper, then it’s rather difficult to have inflation rates falling. And Europe who are actively destroying their energy position is the least well positioned to deal with rampant rising prices of stuff and services.

Coal and gas prices are raging and their much ballyhooed, disgracefully, ugly wind turbines aren’t blowing as much as models “predicted” just a few years ago.

My goodness, what if temperatures on the planet and Europe in particular were to drop over the next decade or so? This would “asymmetrically” compound the problem that is already at hand.

From the article:

Hot weather and low wind speeds are curbing renewable power production, boosting the use of fossil fuel-fired generation and pushing the price of coal up more than 70% in Europe this year. All of that sent the cost of polluting in Europe to the highest ever.

Europe is facing a gas crunch after a bitter winter left storage sites depleted. Boosting inventories — already at the lowest in more than a decade — hasn’t been easy, with top supplier Russia limiting flows at a time when Asia is scooping up cargoes of liquefied natural gas that might otherwise head to Europe.

Europe can’t count on its own production either, with several outages disrupting flows from the North Sea. Domestic output is also in decline, with the giant Groningen gas field in the Netherlands possibly closing three years ahead of schedule. Gas prices are so high that they are trading at a rare premium to crude oil.

But wait, there is more:

OMGoodness, check this out:

U.K. Electricity prices surged to 2,300 pounds ($3,180) a megawatt-hour as Ireland warned of a power shortfall that could lead to blackouts and the cost of power broke records in Spain, Germany and France.

Europe is facing an energy crunch as supplies of natural gas remain below what’s needed to satisfy demand. Any unexpected disruption in electricity supply like a power plant shutting off or a sudden drop in the wind can send already volatile prices even higher, heightening the pain for consumers as the winter heating season approaches.

Ireland, which usually exports wind power to the U.K., is facing acute supply shortages and issued an amber warning earlier Thursday signaling that the country could face blackouts. The Moyle interconnector, which sends electricity across the Irish Sea from Northern Ireland to Scotland, was halted to prevent exports.

Low wind on both sides of the Irish Sea as well as some unplanned outages have sent U.K. power prices soaring. In the intraday power market, there were 11 half-hour periods where the price cleared above 1,000 pounds from 11 a.m. to 6 p.m., with costs hitting a high of 2,300 pounds from 3 p.m. to 3:30 p.m. on Epex Spot SE.

The peak is more than 10 times higher the value at 8 a.m. Thursday, highlighting the extreme volatility in electricity markets that will likely get worse as demand increases with falling temperatures later in the year.

Now, here is a thought: Europe is running into electricity supply problems after some 10 years of reducing production from gas, coal, and nuclear (all base load) and increasing renewables (namely wind, solar and wood burning). So the question is: can the trends below continue?

Well, with the current clutch of clowns in power these trends will continue.

So if Europe has problems with electricity supply now, can you imagine what those problems will be like 5-10 years from now if these trend-following projections hold? And do you think they won’t hold or at least try to achieve them? Well, that is a given. It is how cults work.

This is akin to an investor doing more of what is not working and less of what is… or “doubling down” on a losing trade because they know best. This is absolute poetry for us.

Europe has a problem, a massive energy security problem. When they finally wake up to this fact they are going to quit the focus on ESG and ramp up capex on oil and gas exploration and production like there is no tomorrow and the public will be begging… and to hell with this ESG pixy land stuff. Before we get there, though, we’ll have leadership changes in Europe.

Remember, I told you this is the revolutionary cycle. Yes, so don’t expect it to be pretty. In the meantime, those fiendish Ruskies up north will continue soaking up market share.

How to position? Well, where do we start?

  • Coal stocks
  • Russian oil and gas stocks
  • Oil and gas services, particularly offshore
  • LNG carriers
  • Uranium

All bases covered here except LNG carriers, which brings me to my next article which can be found in the latest issue of Insider Weekly which is available by click the link below.

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