This morning we are facing something of an economic catastrophe but there seems to be something of a conspiracy of silence about it. We have been troubled for some years by the way that the energy supply situation and I am thinking particularly of electricity here has been allowed to become more vulnerable. This poses all sorts of risks to which the official response has been to adopt the ostrich position of putting their heads in the sand. In fact I may be being unfair to ostriches here. Let me illustrate with a number from yesterday morning.
GB Grid: #Wind is generating 0.38GW (1.27%) out of 29.49GW ( UK Wond Energy)
Just to be clear on the numbers the 29.49 GW is what we were generating in total and as you can see the “Saudi Arabia of Wind” was light years away from the claimed 24-25 GW capacity. This morning is much better at a bit over 13 GW but the issue is what do we do on the still days? The other main renewable solar is not much help as it is only useful for a short part of the day and rapidly tails off. I am typing this at just after 9 am and it has not yet made 1 GW.
For today we are in a relatively strong position and are exporting over 4 GW to Europe including 1 GW to Norway which is unusual. They must be in a summer maintenance period. More regularly we are exporting over 2 GW to France. So as we are in a position of relative strength let us take a look there.
Europe
We can start with this from Javier Blas of Bloomberg last night.
European 1-year forward baseload electricity contracts close the day with fresh settlement record highs:
Germany: €384 per MWh
France: €508 per MWh
This raises its own question as we are in summer so things should be calm and yet as you can see we are in territory which would be described by Taylor Swift as “trouble,trouble,trouble”.
On Friday Der Speigel put it like this.
From his office on the 13th floor, Klaus Müller has a good view over the Rhine River and the Siebengebirge mountains. He can see landscapes, houses, offices and factories, the sources of Germany’s prosperity.
He can see some of the very businesses for which his agency may have to turn off the gas tap in a worst-case scenario.
Müller, 51, is the president of Germany’s Federal Network Agency.
He is now mulling what is essential as everyone claims that they are.
The first industries to be hit with outages would likely be those that don’t produce essential things. But which ones are they?…….”Just take paper manufacturers or glass producers,” says Müller. At first glance, they would not appear to be crucial to the functioning of society, but flour is packed in paper and vaccines in glass.Indeed, good choices aren’t even possible in a situation this dire.
This morning has brought another scenario into play and it is one we have been worried about all of 2022. It is that rather than being rationed firms may close down anyway as production is simply not economics.
BREAKING: Germany 1-year forward baseload electricity surges >€400 per MWh for the first time ever. We are truly into crunching territory for the country’s energy-intensive manufacturing industry. The current price is ~1,000% higher than the €41.1 per MWh 2010-2020 average. ( Javier Blas)
France
This is a situation which will confuse many because social media has been full of stories of how well France has done in this area. For example by restricting energy price rises to 4% its inflation rate is a relatively low 6.8%. But that ignores the reality that the bill has been shifted elsewhere as highlighted by the need to fully nationalise Edf. In essence the bill went from the consumer to the taxpayer.
Next up is the issue that the French nuclear programme has been allowed to wither on the vine somewhat.
The company RheinEnergie, which owns a combined heat and power plant in Cologne, provides more specific details. Just last week, the company says, there were “bottlenecks in the French electricity industry.” More than half of France’s nuclear reactors are offline right now, which has forced the country to import large quantities of electricity from other countries, including Germany. ( Der Spiegel)
So as you can see whilst in theory things should be relatively good in France, the reality is rather different.
Germany
The crisis will hit all different types of industry. There is a particular irony in one story in Der Spiegel.
Martin Kopf, a managing partner at Zinkpower Group, says that even if he wanted to, he also couldn’t work without gas. His company galvanizes metals to protect them from corrosion. If he were to shut down his boilers in an uncontrolled manner, the zinc would harden and ruin the equipment.
Because his company is required by the renewables industry.
The industry may be small, but if it failed, the impact would be big. Hot-dip galvanized steel is used as a material in high-voltage masts and solar and wind power plants. Without it, Kopf says, Germany’s plan to abandon nuclear and coal and transition to clean energy wouldn’t be possible.
That link, where renewables rely on the fossil fuel industry has been widely ignored.
Oil Price
We can first look at the energy situation above by comparing it to the oil price.
Puts a little bit more into perspective the German energy crisis. 50% of home heating is gas driven, 10% oil. The cost of electricity converted to bbls is close to 600/bbl ( @MenthorQpro )
Whereas the actual price of crude oil is more than 6 times cheaper than the US $600 above.
Oil prices plunged by 4% at the start of August as the market digested weak economic figures from China, the world’s largest crude oil importer.
As of 10:12 a.m. ET on Monday, WTI Crude prices were down by 4.49% at $94.22. WTI Crude started August on the decline, following the first back-to-back monthly losses in June and July since the end of 2020. Brent Crude, the international benchmark, was down to $100—after finishing July at the $103 a barrel handle ( OilPrice.com)
This morning the front month Brent crude oil future is just below US $100 per barrel. This means that we should be seeing lower fuel prices as August develops. Also it brings into play moves like this.
The city of Munich has returned oil-fired power generation capacity to operation as it works to reduce its consumption of natural gas.
“We reactivated oil burners in two heating plants that have previously been shut down,” utility Stadtwerke Munchen said by email, without being more specific on the fuel being used or volume. ( Bloomberg)
Comment
There is a clear link here between what we are looking at and my usual area which is central banks. They set out models which prefer their own fantasies to reality with disastrous consequences and the renewables lobby did this.
Early modelers did not expect that the variability of wind and solar would be a huge problem……In practice, variability is still a major problem. For example, in the third quarter of 2021, weak winds were a significant contributor to Europe’s power crunch. Europe’s largest wind producers (Britain, Germany and France) produced only 14% of installed capacity during this period, compared with an average of 20% to 26% in previous years. No one had planned for this kind of three-month shortfall. ( Gail Tverberg)
Exactly the same mark to fantasy error. People will pay for that this winter literally in terms of price and sadly some will be cold and hungry and even worse some may die.
Their other error was to ignore the cost of fossil fuels required to oil the wheels of the renewables industry. By driving up the price of oil and gas by discouraging development they raised the price of energy generally. With both the establishment and much of the media also guilty the news gets avoided.