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    The energy crisis, a matter of state for the European Union

    October 4, 2021 - CE Noticias Financieras


      Someone claimed last week that the current energy crisis is not a market problem, but a geopolitical one. Let's call it an X. That assessment is a way to defend the current marginalist market and to exempt Spain from blame, an early victim of the unbridled increase in international prices of natural gas (above 90 euros MWh) and CO2 emission rights (above 60 euros per ton), a tax masked under the control of the European Commission, which has no fiscal powers. In fact, the revenues from the auctioning of these rights go to national treasuries.

      A little over a year ago, a large fleet of LNG tankers roamed the world's oceans with their cargoes of LNG that they had nowhere to put. The collapse in demand for energy derived from the confinements due to the pandemic had led to a corresponding depression in prices, to the point that in April West Texas recorded negative prices, a whopping -40 dollars a barrel. A situation that is now as unimaginable as believing that by the middle of next year the world market will have stabilised again, flooded with gas, as many experts predict, calling into question blind faith in the futures markets.

      For the time being, the crisis is a blatant reality and threatens to make winter bitter for Western countries. When the spigot of the Russian gas pipeline linking directly to Germany, Nord Stream II, is opened, the gas transport capacity to Europe increases by 55 bcm (billion cubic metres). By comparison, the Medgaz Algeria-Spain pipeline has a nominal capacity of 8 bcm. It will be said that the capacity of the pipeline is one thing, but Russia's capacity to extract the hydrocarbon and the will of its president, Vladimir Putin, to favour Europe is another. Putin has chosen to turn off the tap of the gas pipeline that runs through Belarus and Ukraine, through which the technical minimum flows, and has opted to divert its production to that great sinkhole that is China.

      The pandemic and the battle that Donald Trump waged with China in the midst of it is proving very costly: gas producers want to recover the losses from the collapse of consumption in 2020 and the Asian giant, which until now bought from the United States the surplus coal from thermal power plants in this country, has also decided to curb its consumption of this material by opting for the massive supply of gas.

      The government is testing a reform of the PVPC tariff, which will not come in the short term, and the EU is taking the first steps towards a common solution.

      Whether the crisis responds more to a shortfall in supply, as all indications suggest, than to excess demand is something that analysts are still struggling with. What is certain is that the slowdown in Russia's supply, which Algeria will join from 31 October with its threat to cancel the transport of gas through the Maghreb-Europe gas pipeline that runs through Moroccan territory, brings to mind the superpower that, wittingly or unwittingly, the OPEC countries acquired in 1973, when they decided to cut off supplies to the countries that had supported Israel in the Yom Kippur war against Egypt. Oil prices skyrocketed and Western citizens learned the word inflation forever.

      To allay fears of a possible gas supply problem this winter, Foreign Minister José Manuel Albares made an official (read: rhetorical) visit to Algiers last week for a photo-op with Algerian President Abdelmadjid Tebboune, Albares took with him the president of Enagás, Antonio Llardén, in his capacity as system manager and, reluctantly, a representative of Naturgy, a company that considers itself just another market player and prefers to stay out of the conflict, despite its relevant roles: it is the contractor for the majority of the volume of gas in the Maghreb and operates the pipe in the 500 kilometres of Morocco, and the Algerian energy colossus, Sonatrach, has a 5% stake in its capital. All this, if no one else can prevent it, until the end of this month.

      The only official message of the trip, already known, is that Algeria, which had already stressed that Spain is a friendly country, is that the supply is guaranteed. But it has not been said how, beyond the expansion of the capacity of the Medgaz gas pipeline. An extension begun two years ago, which would be effective at the end of this year, and which was taken for granted in a supposed guarantee of winter supply. There are those who consider that rather than reassuring, this message is worrying, as it puts on the table that there is no possible solution for the Maghreb pipeline.

      The EU takes action

      If supply is guaranteed, so are price rises. To mitigate the effect of a skyrocketing gas, the Government has opted to cap the increases in the TUR of domestic and SMEs this quarter and next, generate a deficit and charge the real rise (more than 36% between October and December) in a deferred manner and with interest from April. Therefore, consumers would be charged the debt generated in the months of lower consumption, from spring.

      Meanwhile, the wholesale electricity market continues unstoppable (came to exceed 216 euros MWh last week), pushed by opportunistic gas prices.somewhat by surprise, Ecological Transition on Friday launched a public consultation prior to the reform of the consumer tariff, PVPC, now flanged with the price of the pool. The ministry is testing several options, which can be summarized in a higher price but secured for a certain period or a more risky price linked to the spot market but that can benefit from possible decreases. Too many options with which it will not solve that consumers pay more, or that they calm down and stop blaming the increases (or alleged increases) to the Government, a culture rooted in Spain.

      One piece of good news is that the European Union has taken the first steps towards common measures. The president of the ECB herself, Christine Lagarde, has already called for them, frightened by the pernicious effect of the energy crisis on inflation. Another question is the speed that these measures require: the differential between prices in Spain and Germany (which, according to experts will react when it really affects their industry), is still high, some days more than 100 euros / MWh.


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