Hot Demand: European Gas Prices Soar as Scorching Heat Fuels Air-Conditioning Craze

“Surging Summer Demand Drives Up Electricity Prices in Ireland-Greece Energy Trade”

Electricity prices in the European market are under close scrutiny due to the significant generation of electricity from gas-powered stations in Ireland and the demand during the summer months. This demand can lead to price increases. Additionally, Europe is utilizing the summer months to build up storage in order to ensure energy supplies for the upcoming winter, following Russia’s invasion of Ukraine in 2022. Futures market prices experienced a 4% increase on Wednesday, indicating that extreme temperatures in certain parts of the continent are testing the market’s ability to handle higher demand. However, supply risks are currently contained.

Europe has successfully emerged from last year’s crisis with ample gas storage levels, providing a sense of security for restocking fuel ahead of the upcoming winter. Gas facilities are already 82% full, well above the seasonal average, and natural gas supplies from Norway continue to rise. Nevertheless, the extreme heat has resulted in wildfires in Greece and Switzerland, while Rome and Spain’s Catalonia region have experienced record-breaking temperatures, leading to an increased demand for fuel for cooling purposes. For instance, Italy has witnessed a surge in electricity consumption, with the country’s seven-day rolling average power use reaching its highest level since 2017. Traditional thermal power plants contributed to over half of the day’s actual generation.

Despite the worst of the heat being in the south, gas purchases are also increasing in the UK, where temperatures are below average for the season. Total demand in the UK is reaching levels last seen in May. The European market remains tight, with prices expected to continue responding to news of rising demand or unplanned supply curtailments, according to the Oxford Institute of Energy Studies. The institute’s head of gas research, James Henderson, stated that if European storage is full by early September and the winter begins with cold weather, there may be a further dip in prices followed by a sharp upward spike. Therefore, volatility is likely to be a prominent feature of the market throughout the rest of 2023.

Wholesale prices for electricity delivery in August were trading at €27.70 per megawatt hour on Wednesday. This is significantly lower than the record price of €301 set last summer when concerns about winter gas supplies were affecting the market. EU governments have responded to these concerns by increasing storage, including the importation of liquefied natural gas via tankers. However, gas prices for delivery in January were trading at €53.70 on Wednesday, indicating that fears about winter supplies persist.

Source: Irish Examiner and Bloomberg