Estonian professor: Energy prices increase won't end until war does

LNG. Source: Siim Lõvi/ERR

The increase in energy prices will end once Russia's war in Ukraine does, Tallinn University of Technology (TalTech) energy professor Alar Konist said.

Published this month, the International Energy Agency's (IEA) latest Gas Market Report forecasts a decrease in natural gas prices. Konist considers this forecast too optimistic.

"The answer is simple: when the war in Europe ends," he said when asked when the price of natural gas might stop rising. "So long as there is a war going on, it's relatively impossible to predict what all these prices might do."

According to the professor, this means that once the war is over, the system's deficiency and energy deficit will no longer be an issue. "Then prices can no longer go so high anymore either," he continued. "Of course, whether and when business relations with Russia might recover will depend on the will of politicians and the people as well."

He added that business ties with Russia as close as before certainly can't be restored based on energy security considerations. The bill for investments made to replace Russian energy carriers will also inevitably have to be paid in higher energy prices as well.

Konist explained that optimistic assessments are based on hopes that energy carrier production will be significantly increased.

"Therein lies the key — if major energy exporting countries are willing to invest in their production capacity, then there's hope that prices will go down," he said. "If they don't, if such a price suits them, then we can't expect the price to go down."

In its recently published report, the IEA forecasted that the price of natural gas would begin to fall, and by 2025 would reach somewhere between current and 2020 levels. This forecast was based in part on average gas futures prices in April. Futures are essentially contracts indicating at what prices investors are willing to buy or sell quantities of natural gas at a future date.

News agency Bloomberg reported on Monday that gas futures rose little this spring, but market participants' assessments have changed, and natural gas futures prices are climbing rapidly as well. In other words, optimistic hopes for the fall are increasingly being abandoned.

With today's technology, however, Europe's energy independence is nothing but a dream, Konist stressed. Europe lacks sufficient renewable energy conservation capacity. Excluding coal, Europe's deposits don't contain sufficient energy raw materials to supply its controlled production facilities. Major investments would be needed in order to use coal on a major scale without it having a devastating impact on the environment, but the EU has essentially eliminated any chance of such investments happening. Germany, for example, has pledged to phase out coal as a power source altogether by 2030.

Nonetheless, according to the professor, Estonia may still be able to rely on oil shale.

"The price of shale oil is not dependent on global market prices," he said. "A year ago, we conducted research at TalTech together with the University of Tartu in which we demonstrated that it is technologically possible to use carbon capture technologies in oil shale energy. In fact, this means that we can meet those climate goals while using oil shale as well."

Of course, carbon capture comes at a cost as well — €80 per ton of CO2 to be precise, Konist said, referring again to last year's research.

"If you add the cost of carbon capture to the cost price of energy production, that would give us an electricity price of €110-130 per megawatt-hour," he explained. "But that would mean that we wouldn't have to pay for the cost of a CO2 quota. In other words, that is the price we could guarantee."


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Editor: Aili Vahtla

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