Affected by the global economic recovery, monetary easing, and carbon neutrality goals, global commodity prices will continue to rise in 2021, and energy prices will also rise accordingly, and electricity prices in major EU economies will continue to rise.
World Energy Crisis
- Russian President Vladimir Putin asked Gazprom to start planning to increase the amount of natural gas in underground storage facilities in Europe after completing the delivery of natural gas to Russia’s underground storage facilities. Since the beginning of this year, the price of natural gas in Europe has soared six times, and this fall has risen nearly five times in just one and a half months, leading to a three-fold increase in electricity prices in parts of Europe.
- Russia has announced a national holiday for 9 days(Oct.30~Nov.7,2021), which will once again trigger a natural gas “out of supply” crisis. The EU’s energy supply is deeply dependent on Russia. In 2020, the EU’s natural gas demand will reach 560 billion cubic meters, and the import from Russia will account for 39%. The wholesale price of natural gas delivered in the UK in the first quarter of 2022 soared by 9.5%, a cumulative increase of more than 5 times from the beginning of the year; the price of wholesale natural gas in the Netherlands has increased by nearly 8 times since the beginning of the year.
- British “Independent”: In the past few weeks in the UK, four small energy companies have been unable to withstand price increases. Fertilizer producers that use natural gas as raw materials are struggling, and heavy industries that consume a lot of heat, as well as aluminum and cement producers, are also in deep trouble. Natural gas prices in Europe have been rising since last year, breaking records continuously. Power companies’ competition for liquefied natural gas carriers has pushed up the price of natural gas. A month ago, the price of natural gas was estimated to be slightly more than US$500 per thousand cubic meters, but at the end of September it reached US$1,200.
- India: As of the end of September, 16 of the 135 coal-fired power plants in India had zero coal stocks. More than half of the power plants have less than three days of inventory. 70% of India’s energy consumption comes from coal. Now coal has become a scarce commodity, and its price has risen by more than 100%, leaving Indian companies unable to pay attention to it.
- EU & UK: Energy giants such as Exxon Mobil and Royal Dutch Shell may make huge profits from the increase in energy prices this year, which has attracted the attention of regulatory authorities in Europe. The UK is considering imposing a so-called “windfall tax” on energy companies that profit from rising natural gas prices.
- US Department of Energy: Without major policy or technological changes, global energy consumption will increase by approximately 50% during 2020-2050. Due to economic and population growth, energy-related carbon dioxide emissions will also increase over the same period.
- The increase in global natural gas supply in recent years is mainly due to the rapid growth of shale gas in the United States. With the deteriorating cash flow of oil and gas companies, the decrease in exploration investment has led to a sharp drop in the number of new drilling wells. The high growth rate of shale gas production in the United States is unsustainable. The demand for natural gas has rebounded rapidly when the overseas epidemic has resumed. It is estimated that there will be a supply gap of 17.8 billion cubic meters in global natural gas in 2021. And if the shale gas extraction in the United States does not improve significantly in the future, the natural gas shortage may worsen in the future until 2023. Maintaining natural gas prices at a high level will inhibit the substitution of natural gas for coal consumption on the one hand, and will also support coal prices on the other.
Global inflation, rising prices
The impact of the new crown epidemic on the global supply chain continues to appear, and prices have recently risen in many countries and regions.
- In Japan, the retail prices of many products have been raised since October, and local media said that Japan is entering the “autumn of price increases.”
Soybean prices are skyrocketing! Electricity and gas prices are also raised!
- After Tokyo, Japan entered October, it was obvious that many foods had risen in price, including butter that was put on bread for consumption. The reason for the price increase is mainly due to the increase in the price of raw materials such as soybeans and other edible oils. 80% of Japan’s edible soybeans are imported. The price of tofu has been relatively stable in the past 30 years, and retail prices in some supermarkets have rarely risen by nearly 10%.
- This round of raw material price increases has also spread to Japan’s catering industry. During the epidemic, some meat processing plants in the United States have stopped working, leading to an increase in the price of imported beef. One of the giants of Japanese beef rice, “Matsuya” recently announced that it will increase prices on a large scale in Japan. The price of a bowl of beef rice has risen from the original 320 yen. To 380 yen, an increase of nearly 20%.
- On the other hand, affected by the rising prices of liquefied natural gas and coal, Japan’s 10 large power companies have all raised their electricity prices from this month. It is up 2% from September. In addition, four large gas companies have also raised gas prices. As the current supply of various raw materials in the international market is still unstable, this round of price increases in Japan is expected to be difficult to ease in the short term.
- As of September, the country’s electricity price per MWh had risen to 285 pounds, breaking the 22-year historical record from 1999 to the present. This price has skyrocketed seven times over the same period in 2020. Similar to the situation in Europe, the production recovery process of the high-power-consuming chemical and metal processing industries in the United States is also significantly slower than the low-power-consuming industries.
- The price of electricity in the UK will rise to a record high next month (November 2021). Electricity prices in the UK will rise 13.5% next month to 320 pounds per MWh.
- The United Kingdom is pursuing coal-fired power at a faster pace. The original plan was to close all coal-fired power plants in 2025. Earlier this year, the goal was advanced to 2024. In the past ten years, the proportion of coal power in the UK has declined rapidly, from 40% of the total power generation in 2010 to 1.8% in 2020. Wind energy is also currently the most important source of electricity in the UK, with power generation accounting for 24.2%.
- The share of nuclear power generation in the UK has increased in recent years. Moreover, the proportion of electricity generated by natural gas in the UK is as high as 40%. During the transition period when coal-fired power generation is rapidly declining and the proportion of renewable energy power generation is slowly increasing, natural gas power generation has played a transitional role.
- Since August, 10 small natural gas companies in the UK have declared bankruptcy one after another. At the end of September, three more British energy companies were forced to close their business. The pressure on the energy industry has continued to rise.
- Britain natural gas prices rose 37% to 400 pence/them, a record high in wholesale natural gas prices.
- British energy regulator: Next spring (2022), the price of energy in the UK will once again “rise substantially”. Chief Executive Officer Jonathan Brierley said that due to the “unprecedented increase” in natural gas prices, the upper limit of energy suppliers’ unit energy prices had to be raised again. Recently, due to energy shortages, the price of natural gas in the UK has hit a record high.
- France has recently been severely affected by energy shortages and soaring prices. From July to September this year, the “government-controlled price” of French natural gas was raised three times in a row; from October 1st, it was raised again by 12.6%, which directly affected the approximately 3 million household users who signed contracts with this pricing mechanism. The rise in the price of natural gas and other energy sources will lead to higher electricity prices, which may have a more profound negative impact on the overall energy transition in Europe.
- France plans to completely phase out coal power generation in 2021. Unlike other countries that rely mainly on renewable energy, French nuclear power plants supply 70.6% of the electricity and generate 14.2% of the world’s nuclear power.
- Electricity prices in Germany will rise to a record high next month (November 2021). Electricity prices in Germany will rise 18% next month to 309 euros/MWh.
- Germany: Known as the economic engine of the European Union, it is still one of the largest coal consumers in the world, and it is more dependent on coal than other European Union countries. In 2019, after long-term negotiations, the German government plans to close all 84 coal-fired power plants by 2038. Such measures are not radical. In order to alleviate the pains of the coal-producing regions during the transition period, the German government has also laid down its blood and plans to spend 45 billion US dollars to promote the transformation of related industries. As early as after the Fukushima nuclear accident in 2011, Germany decided to shut down all nuclear power plants by 2022, and now Germany has begun to accelerate the phase-out of coal power generation. These measures are all in order to achieve the goal of environmental protection: by 2040, renewable energy will provide 65% to 80% of the country’s electricity.
- In recent years, the proportion of wind power and photovoltaic power in Germany has risen rapidly. By 2020, the power generation capacity has exceeded that of fossil fuels for the first time, and the net power generation capacity of renewable energy has exceeded 50%, which is higher than 46% in 2019. Among them, wind power accounted for 27%, becoming the most important source of electricity. German photovoltaic power generation has also increased by 9.3% compared to 2019. By September 2020, monthly power generation has exceeded that of hard coal power plants.
- The high cost of new energy has pushed up the price of electricity in Germany, which is more than twice the world average. At present, especially the manufacturing industry needs a lot of power consumption, industry leaders naturally do not welcome radical energy reforms. They are worried that high electricity prices will reduce the competitiveness of the industry, and they are quite critical of measures to abolish nuclear.
- Germany: Baden-Württemberg, the third-largest state in terms of area and population, requires that from May 1 next year, all newly built houses in the state install photovoltaic solar installations on the roof. From January 1, 2023, all existing buildings in the state will also be retrofitted with photovoltaic solar installations on the roof.
- The average wholesale electricity price at the beginning of September was about three times the average price six months ago; the Dutch TTF wholesale electricity price was four times higher than in March.
- Gasoline prices in most parts of Canada soared this week to their highest level in 14 years. Among them, the retail price of gasoline with a common label has reached approximately RMB 7.37 per liter, a year-on-year increase of approximately RMB 2.34. Oil prices have risen to the highest levels in history in the Greater Toronto Area of Ontario and Alberta.
- Bloomberg: Brazil’s severe drought has led to the collapse of hydropower, which accounts for about 76.8% of Brazil’s total renewable energy power generation capacity. If electricity imports from Uruguay and Argentina are not increased, this South American country may be forced to start restricting electricity supply.
- The hydroelectric reservoirs in southeastern and midwestern Brazil account for nearly three-quarters of the country’s installed capacity, but in the worst drought in 91 years, hydroelectric reservoirs have dropped to 17%. The rapid decline in hydroelectric power generation in Brazil has forced people to switch to more expensive thermal power. Statistics show that the price of electricity for Brazilian companies and consumers has risen by as much as 40% this year.
- Electricity prices have increased significantly. According to data released by the Brazilian Geographical Statistics Bureau on October 8, Brazil’s annualized inflation rate reached a record high of 10.25% in September this year. Among them, the price of electricity in Brazil has risen sharply, rising by 6.47% that month, which has promoted the general increase in the prices of other commodities.
- Data shows that the price of motor vehicle fuel in India has risen by nearly a quarter from the beginning of this year. India’s national LPG prices have started to rise again in recent days.
- In the past week or so (early October 2021), India’s gasoline and diesel prices have risen 7 times. Now India’s motor vehicle oil prices have hit a record high.
- 70% of India’s electricity generation needs to be achieved by burning coal. Although the Indian government is determined to develop new energy sources, its industrial capacity is lagging behind, and coal consumption has only increased.
- Bloomberg: India’s coal-fired power plants have an average of only 4 days of coal stock left, which is the lowest level in history; more than half of Indian coal-fired power plants are in a power outage warning state. Coal-produced electricity accounts for about 70% of India’s electricity supply, and Indian electricity prices have soared due to coal shortages.
- Central Electricity Authority of India: The average coal inventory of coal-fired power plants in India can be used for 4 days. Among the 135 major coal-fired power plants, more than half of the power plants have coal inventory that can be used for less than 2 days.(Oct.19,2021)
- Lebanon’s two main power stations have stopped supplying electricity due to exhaustion of fuel, causing the country to fall into a total blackout, which may not be able to resume operation in a short period of time. Since 2019, Lebanon has fallen into a severe economic crisis. Due to the lack of foreign exchange, it is difficult to import fuel from abroad, which has further aggravated the energy shortage situation. For a long period of time before the blackout, most people could only get two hours of electricity a day.