BAKU, Azerbaijan, Jan.19. Weather will loom large in energy markets, Trend reports with reference to the Economist Intelligence Unit (EIU).
“Europe’s heatwave drove up demand last summer, causing gas and electricity prices to spike, especially as winds dropped to levels insufficient to generate enough power to meet Europe’s electricity needs while drought affected hydropower generation in many countries. These dry conditions, together with rising water temperatures, also hit nuclear power generation. In addition, the severity of Europe’s current energy crunch depends largely on how cold temperatures fall over the winter, not just in 2022/23 but in 2023/24 as well; the colder the winter, the more countries will have to draw down stockpiles built up over 2022,” reads the latest EIU report.
Reportedly, below-normal temperatures will not only raise the specter of energy rationing, but also put upward pressure on prices over the summer as Europe scrambles to refill reserves—this time without Russian supplies.
Climate played a major role in commodities in 2022 and will do so again in 2023. Scorching heatwaves in the northern hemisphere hit production of wheat in the US and Europe in 2022, and climate change means that catastrophic weather events are becoming more frequent. These include La Niña, which is stretching into an unprecedented third consecutive year and will be detrimental to maize and soybean production in the first half of 2023, in addition to other crops like sugar and coffee.
Wheat, which was heavily affected by war-related supply disruptions in 2022, faces significant climate risks. In the US large swathes of the southern plains remain under drought conditions, and crops are in unusually poor condition heading into winter dormancy. Extremely dry, occasionally frosty weather in Argentina is causing damage across major producing provinces there, but Russia and Australia are on course for a second consecutive year of bumper crops, which, for the moment, is alleviating concerns about production in the western hemisphere.
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