By: Bloomberg – European power prices extended last week’s drop, tracking natural gas futures lower as Russian supplies of the fuel are increasing.
German and French electricity for March slid about 7% each on Monday on the European Energy Exchange AG, adding weight to the notion that the market has moved beyond the worst of the energy crisis.
Traders are keeping a close tab on gas flows to Europe from Russia, which rose again via a route through Ukraine after declining late last week. Sliding gas prices mean lower production costs for power stations using the fuel.
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While next-month power prices have more than halved since reaching record levels in December, they are still much higher than normal and are denting profits at companies across the region. Aurubis AG, Europe’s top copper smelter, warned on Monday that energy costs are mounting.
German power for March fell 6.7% to 172 euros per megawatt-hour at 12:56 p.m. in Berlin, while the year-ahead price fell as much as 3.1%.
Fabian Ronningen, a power analyst at Rystad Energy AS, attributed most of the bearish moves to the rise in gas flows from Russia. Forecasts for milder weather and increasing wind power output may also weigh on prices.
Output from turbines are poised to exceed 50,000 megawatts by the middle of next week, according to a Bloomberg model. There’s still a high level of uncertainty in forecasts that far in advance. Wind, as well as solar, takes priority on the grid over dirtier and more expensive energy sources such as gas and coal.
- Bloomberg’s German wind power forecast:
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Opinion: Given the current political climate in Eastern Europe we may be looking at the start of what could be a long-term energy crisis in Europe. As politicians wrangle with the balance of providing affordable power to their constituents they also struggle with the political difficulties and unpredictability that comes with allowing Russia to control a large portion of their energy supply. As the U.S. continues to monitor the situation from a military standpoint they are also working on contingency plans to re-route and allocate LNG resources to Europe in the event of a shut-off from Russia. Only time will tell if this is Russian saber-rattling or if we are at the precipice of a long-term conflict. One thing is for certain, the commodity markets are ripe with volatility as the Russian conflict and future of interest rates keep traders and investors on edge.