Arctic blast to prop up energy prices

Bloomberg

The first cold blast this winter that propelled European power and gas prices to their highest levels in years may be about to dissipate, but its impact will be felt for months to come.
From a snow storm in Madrid to record spikes in the UK power market as wind dropped — the weather has been the main driver behind the rally. Bullish gas price forecasts from Goldman Sachs Group Inc and Wood Mackenzie Ltd indicate that the wild ride might not be over just yet.
“It’s been a very exciting start to the year and there’s every chance that the next few weeks and months will be extremely volatile too,” said Bo Palmgren, chief operating officer at Danish trading company MFT Energy A/S in Aarhus.
It’s a stark change from a year ago when the pandemic paralysed industrial activity and even spurred talk of gas prices following oil below zero because of an unprecedented glut. An increase in the roll out of
vaccines may also drive
economic recovery and spur demand.
A relatively rare weather phenomenon with the potential to disrupt the polar vortex — the winds that usually keep cold air contained in the far north — is threatening to send a further Arctic blast across North America, Europe and Asia from late January.
People turning up their heating could increase the depletion rate at the region’s gas stores going into spring. The knock-on effect is that summer prices will be buoyed by the demand to fill depleted fields and salt caverns ahead of next winter.
“The current cold spell in the northern hemisphere is paving way for a tighter global gas market throughout the year,” said Massimo Di Odoardo, director of European gas at WoodMac.
Goldman raised its forecast for the Dutch month-ahead contract, the regional benchmark, by 19%. Woodmac expects the average price to be 75% higher than last year, it said.
If the cold weather persists over the next month, power prices in Germany and the Nordic market could gain as much as 10% because of the hike in demand, said Arne Bergvik, chief analyst at Swedish utility Jamtkraft AB.
Except for a balmy start to next week, temperatures in northwest Europe are mainly forecast below seasonal norms for the next month. That should support everything from gas to power and carbon futures, which all reached new highs last week. The region’s normally steady supply of liquefied natural gas cargoes could also sail away to Asia, where gains beat even the Bitcoin rally to new highs.
The past week showed what the volatility is all about.