Europe’s Energy Crisis Presents A Real Danger, by Daniel Lacalle

Europe’s governments have created an energy crisis for Europe. A severe winter could be disastrous. From Daniel Lacalle at app.hedgeye.com:

Europe’s Energy Crisis Presents A Real Danger - AdobeStock 9699481

This week the wholesale price of electricity has exceeded the psychological barrier of 200 euros per megawatt hour in most countries of the European Union.

Although the daily price currently only affects 15% of the energy sold, since the rest is locked for almost twelve months since last winter at much lower prices, it is a sign of future risk. Thousands of contracts are going to have to be revised with huge price increases in the next three months when the locked contracts expire.

The price of liquefied natural gas (LNG) has soared to $34/mmbtu delivered in December and January. In comparable energy terms it would be about $197 per barrel of oil equivalent, according to Morgan Stanley. Meanwhile, the price of natural gas (NBP) has risen more than 200% in 2021.

The price of CO2 emission rights has increased more than 1,000% since 2017, and more than 200% in 2021. This concept, which is a hidden tax for which the governments of the European Union are going to collect more than 21 billion euros in 2021, adds to the inflationary spike.

These extraordinary tax revenues should be used to mitigate the price increases in consumer bills and avoid an energy crisis in Europe that will sink the recovery.

Two key factors explain the rise in energy prices and in both there is a responsibility of governments: The forced closure of the economy is a key factor to understand the damage generated in the supply chains, and the prohibition of investment in gas resources and abandoning nuclear in Germany has led to a more volatile and expensive energy mix in peak demand periods.

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