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Conditions in Europe

Rising Energy Prices Will Test Central Banks' Patience

The recent increase in energy prices threatens to keep inflation in most emerging markets (EM) above central bank targets for longer than previously expected, putting upward pressure on local interest rates. Hydrocarbon prices continue to trend upwards, as strong recovery in demand on the back of re-opening of economies interacts with supply constraints. Oil prices surged to a multi-year high, and there’s a potential for prices to go higher given that utilities and industrial companies across the world could switch from high-priced natural gas and LNG to oil.

Markets have reacted by pricing in more rate hikes in several EMs, especially those outside of Asia. In EM Asia, the impact of energy prices on headline inflation tends to be more muted, while central banks are more patient than in other EMs. Therefore, the tightening in that region is likely to continue to lag that in most other major EMs.

Rising energy prices, amid elevated food prices and unemployment, raise concerns over potential bouts of social instability in several EMs, ultimately lowering policy predictability. This is especially the case in Latin America, where several countries have already experienced periods of widespread protests this year, in some cases, causing a watering down of proposed fiscal consolidation bills (Colombia). A heavy electoral cycle in the region this year and next means the greater likelihood of less known candidates, with less predictable policies, becoming more popular.

Re-Balancing of Europe's Gas, Power Markets Seen Unlikely in Q4

A rapid re-balancing of the European gas market looks an unlikely prospect in Q4 2021 as prices continued to reach fresh record highs deep into September.

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Time for Europe and the IEA to Create a Strategic Gas Reserve

Record gas prices have sparked panic in Europe and left policymakers scrambling for answers. Solutions—like bailing out power suppliers, protecting vulnerable retail consumers with state subsidies, or pleading with Russia for more gas—just paper over the cracks. Building strategic gas reserves is a better long-term fix for price stability.

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Sky’s the Limit? Global Gas Prices on Stellar Rally

A tight global gas market - triggered by a cold, long winter, competition between Asia and Europe for LNG cargoes, low storage levels, and constrained Russian gas flows to Europe - has pushed prices across the globe to record highs.

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High European Gas Prices Could See 'Dangerous' Demand Destruction: Enagas

The current high European gas prices can lead to "dangerous" demand destruction in Europe, the CEO of Spanish gas infrastructure group Enagas said Sept. 23.

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Implications in the U.K.

U.K.'s Largest Energy Suppliers 'Will Withstand Market Turbulence'

Efficient hedging and good access to capital should ensure Centrica, EDF Energy, E.ON UK and Scottish Power Ltd. ride out the UK's energy supplier crisis, S&P Global Ratings said Sept. 30.

Three more small suppliers ceased trading Sept. 29, bringing total supplier failures this year to 12.

"We expect further consolidation in the number of operators -- particularly for smaller players -- as the UK heads into the winter months with energy prices remaining high," the ratings agency said.

All four of the above-named larger suppliers rated by S&P Global Ratings, however, "have prudent hedging policies in place to manage commodity price risks," it said.

The likelihood of state intervention would increase, meanwhile, if remaining operators hit liquidity and administrative constraints in their ability to absorb large customer books.

"The October price cap reset and the imposition of an industry levy to absorb the burden of failed suppliers will challenge household energy affordability, particularly as supportive government measures, such as furlough, end," it said.

Supplier failures with years has meant large and midsize players have taken on almost 2 million accounts under regulator Ofgem's supplier of last resort mechanism.

Many of these customers are on the price-capped default tariff and are loss-making for suppliers, despite a 12% hike this winter in the tariff rate.

Gas prices have increased by nearly 180% since the beginning of the year, including a 55% rise since August.

At the same time, spot prices for electricity have averaged about GBP80/MWh this year versus a 2018-2020 average of GBP40-45/MWh.

S&P Global Platts assessed the price of front-month UK NBP gas at 214 pence/therm Sept. 29, a doubling in price since Aug. 23.

British Steel 'Can't Absorb' High Energy Costs; U.K. Says Supply Not an Issue

U.K. steelmaker British Steel said Sept. 21 the "huge extra costs" of the U.K.'s current spiraling energy bills "can't simply be absorbed" and are putting the U.K. steel industry at an increasing disadvantage compared to some of its European counterparts.

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Centrica Postpones Investor Event to Focus on Commodity Price Crisis

U.K. utility Centrica has postponed a capital markets event in November because of the current energy price crisis, it said in a statement on the London Stock Exchange Oct. 13.

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Highest-Ever Zeebrugge Basis Leads to Record U.K. Gas Export

In the latest of records to fall within the wholesale market for European natural gas, Belgium's Zeebrugge spot basis spread to the UK has reached its highest-ever level, triggering the greatest gas export the UK has ever seen.

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U.K.'s Domestic Gas Industry in Focus as Wholesale Prices Soar

With UK gas prices at record highs, the ability of the country's gas sector to help meet demand has never been in sharper focus.

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Rising Gas Price Threatens U.K. Retail Energy Market

The risk of defaults in the UK energy retail market have soared on the back of rising wholesale gas and power prices. The following is a breakdown of the major issues being tracked by S&P Global Platts.

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U.K. Government Will Not Bail Out Failing Power, Gas Companies: Minister

The UK government will not bail out failing power and gas companies amid the unprecedented high prices in the country, Business and Energy Secretary of State Kwasi Kwarteng said Sept. 20.

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Russia’s Role

Russia Holds Key to European Gas Prices as Tough Winter Looms

European gas markets enter winter at record highs after TTF prices soared 340% this summer. The rally was triggered by depleted EU gas stores and driven by global competition for LNG as well as Russia's reluctance to send additional gas volumes via Ukraine.

Gazprom Doing 'Everything Within Its Capabilities' to Meet Requests for Gas

Russia's Gazprom said Sept. 20 it was trying to meet demand for more gas in Europe and was still meeting all its obligations, in comments that followed renewed criticism of the company's selling behavior by European parliamentarians.

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Russia's Gazprom 'Always' Dulfills Contractual Obligations in Full: Miller

The head of Russian gas giant Gazprom has defended the company's sales strategy, saying it "always" meets the requirements of its contracts with buyers.

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Russia Books Under Half Available Yamal Gas Line Capacity for October

In a contentious market maneuver, Russian gas giant Gazprom booked Sept. 20 less than half of the natural gas transportation capacity offered on the Yamal pipeline from October, deepening the energy crisis within Europe.

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Global Gas Prices

European Gas Price Strength Set to Spill into Winter

As the global gas industry prepares to meet at the major Gastech conference being held in Dubai next week, the state of the European gas market couldn't be more precarious.

Last summer, the market was beginning to consider the possibility of negative prices amid significant oversupply, full storage sites and weak spring demand triggered by the COVID-19 pandemic.

Now, the tables have completely turned.

European gas prices are at record levels, with the fuel in high demand globally, amid very low European storage levels following a cold and protracted winter.

The market has also gained support from soaring carbon prices and numerous supply curtailments, from LNG production facility outages to subdued Russian gas flows via Ukraine and Belarus.

Many have been quick to blame Russia in part for the high prices and tight market in Europe, seeing the lower flows via Ukraine as an attempt by Moscow to force Europe's hand to allow the controversial Nord Stream 2 pipeline first to be completed and then to begin commercial flows.

EU Regulators' Body Questions Effectiveness of 'Centralized' Gas Purchasing

ACER, the body representing EU energy regulators, said Oct. 13 it was unclear whether a proposal for a "centralized" EU approach to strategic gas purchasing would have any material effect on pricing.

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Asian Gas Importers Brace for Steep Winter LNG Prices

Asia's LNG importers expect high spot prices this winter on the back of tight demand-supply fundamentals, which could derail procurement plans and increase power prices, especially if temperatures drop sharply similar to cold snaps seen in the previous winter season.

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Oil-Indexed Gas Supply Contracts Protect Against Gas Price Volatility: GECF

Long-term, oil-indexed gas supply contracts provide buyers with protection against gas price volatility, the Gas Exporting Countries Forum said Sept. 29, as prices continued to hit new record highs.

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Effect on Energy Transition

Soaring Gas Prices an Opportunity for Hydrogen: Nel CEO

The green hydrogen market will continue to deliver rapid reductions in production costs, despite soaring energy and commodities prices, the CEO of the world's largest electrolyzer manufacturer Nel, Jon Andre Lokke, told S&P Global Platts.

Power and gas prices have risen to record highs in Europe, pushing up production costs for gas-based hydrogen, as well as electricity costs for grid-connected hydrogen production from electrolyzers.

S&P Global Platts JKM was assessed at $27/MMBtu Sept. 22, up from around $5/MMBtu in September last year.

The longer-term declining cost of wind and solar generation boded well for the renewable hydrogen market, Lokke said in an interview Sept. 23.

"The fundamental cost of renewables is going down and will continue to do so," he said. "Short-term price swings in power are less important than the fundamental cost of generation."

Soaring gas prices in Europe also buoyed the renewable hydrogen market, Lokke said.

"We always like to see higher prices of fossil energy sources, and look forward to seeing these become even more expensive as cost of carbon is better reflected in the overall price."

U.K. Targets Power from 100% Renewable Sources by 2035

The goal – outlined during the Conservative Party conference on Oct. 4 – builds on the government's target to cut CO2 emissions by 78% by 2035 compared with 1990 levels and comes amid a period of stress in the UK energy system caused by rising international gas prices.

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The Energy Transition And What It Means For European Power Prices And Producers: September 2021 Update

The goal – outlined during the Conservative Party conference on Oct. 4 – builds on the government's target to cut CO2 emissions by 78% by 2035 compared with 1990 levels and comes amid a period of stress in the UK energy system caused by rising international gas prices.

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Spiraling gas and power prices in late 2021 have sent ripples across the European energy and industrial sectors, with the UK especially hard hit.

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