Eesti Energia: Cold tests energy resilience, oil prices still wait-and-see

Snow on power lines.
Snow on power lines. Source: Siim Lõvi/ERR

The current cold spell is testing Europe's resilience in the ongoing energy crisis. While most of the attention over the past week was nonetheless on the price cap for Russian oil and sanctions that have started to work, the markets are still in a wait-and-see position, according to an energy market overview by Eesti Energia market analysis strategist Olavi Miller published Monday.

The average price of electricity in Estonia last week was €350.80 per megawatt-hour, up by €89.50 per megawatt-hour compared with the previous week.

The cheapest hour was on Monday, November 28 from 3-4 a.m. and the most expensive on Wednesday, November 30 from 5-6 p.m. at €503.55 per megawatt-hour, according to Central European Time as reported by Nord Pool.

Colder and drier weather as well as quite low wind power output continues to affect the increase in electricity prices.

The average price of natural gas for the week, meanwhile, was €132.60 per megawatt-hour, up by €9.90 per megawatt hour compared with the previous week. This rise was driven primarily by colder weather that pushed the price to a seven-week high on Thursday. The price fell on Friday, however, as the market had overreacted to cold weather forecasts.

December cold spell testing Europe's resilience

This month appears to be shaping up to be a test of Europe's resilience in the energy crisis that has worsened over the past year. The continent is under pressure from rising gas and electricity prices and falling temperatures, although the situation with gas storage is still good.

A month ago, European gas storage averaged at its maximum of 95 percent full. Now that a spell of slightly colder weather has persisted for two weeks, average capacity has dropped to 91 percent. It is the latter that will become the main yardstick of coping with the crisis for as long as most of the winter still lies ahead.

Compared with previous years, Europe stockpiled significantly more natural gas for the winter, which was supported by LNG imports, consumption reduction efforts as well as mild weather in October and November. Stocks reached their maximum on November 13, following which they have declined by 26 terawatt-hours — less than half the five-year average for the same period.

According to strategic research provider BloombergNEF, November gas consumption in Northwestern Europe, Italy and Austria was 26 percent lower than normal, but December's cold weather is only beginning to reveal how much of this reduction was caused by warmer-than-usual weather and how much by conscious austerity. If gas storage capacity is higher than the five-year average by the turn of the year, it can be said that the region's efforts to avoid a winter crisis have proven to be fruitful.

The EU has been negotiating measures for months to limit the volatility of gas prices, but there is still no consensus on the best solution, leaving stocks and the reduction of consumption as the primary safety cushion. According to BloombergNEF analysts, Europe should head into next spring with natural gas storage at 53 percent capacity in order to be able to replenish stocks next summer.

Vehicles on a snowy street in Central Tallinn. Source: Siim Lõvi/ERR

As a result of arctic influences, significantly colder weather than average is forecast in Northern Europe and Germany for the beginning of December, with temperatures up to 7 degrees lower than average in the Gulf of Finland region, according to Maxar Technologies.

Governments in countries from Finland to France have warned of energy shortages and short-term blackouts in the coming months, and mid-last week, the price of electricity on Nord Pool rose by 8.2 percent to an average of €373.23 per megawatt-hour, the highest price seen since the peak of the energy crisis in September.

The filling of huge hydro reservoirs in the Nordic countries and energy producers' willingness to use them in a situation where prices may rise further during the winter will become an important influence on price movements.

Southern Sweden is already in a major power deficit due to repairs on reactor 4 at its Ringhals Nuclear Power Plant slated to last through the end of February, and the country's biggest nuclear reactor will also be undergoing repairs this week. Prices rose to nearly €400 per megawatt-hour at the beginning of last week and will remain above €300 per megawatt-hour in the weeks ahead due to continuing cold weather.

This market overview was drawn up by Eesti Energia according to the best current knowledge, with provided information based on public data. Eesti Energia's market overview is presented as informative material and not as a promise, proposal or official forecast by Eesti Energia.

Due to rapid changes in electricity market regulation, the market overview or the information contained therein are not final and may not correspond to future situations.


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Editor: Aili Vahtla

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