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A Cold Winter Results In Hot Prizes

ActivTrades

ACTIVTRADES WEEKLY

By CHRIS ILLING

www.activtrades.bs

The energy crisis has long since arrived in England. Long queues in front of petrol stations are no longer uncommon, and price increases are also imminent in Europe because the gas price is at a record highs.

Natural gas prices have doubled this year and are expected to continue to rise, resulting in higher winter heating bills for some consumers and higher costs for electric utilities.

In the futures market, the natural gas contract for October rose above $5 per one million British thermal units, or mmBtus, for the first time since February 2014. Besides electricity and heating demand, natural gas is an important feed stock and is used in the processing of chemicals, fertilizers, paper and glass, among other products.

The main reason for the enormous gas price is the economy, because after the COVID lockdown it picked up speed again, which led to increasing demand. But the storage facilities in Europe are only half full; usually they would be 70 to 90 percent full at this time of the year.

There are currently delivery bottlenecks from Russia. “The Gazprom Group is deliberately holding back deliveries,” some experts say.

Most recently, the Russian state-owned company announced it would not deliver any additional gas supplies via Ukraine, and that maintenance work would be carried out on important parts of the pipelines in Belarus and Poland. With these measures, Russia is deliberately driving up the gas price, according to the experts.

All these announcements had a major impact on prices in Europe, the most notable being that Gazprom stopped replenishing underground gas storage facilities in Europe for a while. Shortly before the heating season, that was a negative sign, and now there might not be enough supplies for a cold winter on the continent.

There is still no threat of a gas deficit. The storage amounts are sufficient. There is also sufficient capacity to ship liquefied natural gas (LNG) to Europe, for example, from the US.

Now the US industry is also suffering from lower production due to Hurricane Ida, with 77.3 percent of Gulf of Mexico production still shut-down. According to the Energy Information Administration, the level of gas in US storage is presently 7.4 percent below the five-year average and 16.8 percent below the level last year.

Nevertheless, European heating customers can expect an expensive season. According to the expert, prices will go up for practically all suppliers. The fact is Russia is the most important oil supplier for Europe. Some European governments are involved in the Nord Stream 2 pipeline. The last pipes in the pipeline from Russia to Germany were recently laid. The German authorities should approve the commissioning by January. Russia guarantees that more gas can be delivered cheaper through the new pipeline. But the expert disagrees: For the customer, commissioning Nord Stream 2 means nothing because the gas price is not determined by the delivery route, but by the market.

Gas-fired power plants are also used to generate electricity. Electricity also went up in wholesale prices, currently by a whopping 130 percent as of August 2021. According to the expert, the solution can be found in the production of synthetic liquid fuels. As a result, oil heating would also have a climate-neutral perspective in the long term. According to experts, climate-friendly heating oil should be on the market in Europe as early as 2030.

What does it mean for the savvy investor? Being a crucial part of the supply chain, pipeline companies typically do well when gas prices rise. Aside from providing a good gas price hedge, the piping companies offer some pretty fat dividends. Benchmark Brent crude oil now trades above $79 a barrel, or more than 45 percent above where it started the year, and analysts warn that a tightening oil market could prompt further gains.

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