Europe braces for winter gas crunch

WEBVTT
00:00:00.160 --> 00:00:03.680
But it becomes a global competition for what's left.
00:00:03.680 --> 00:00:09.359
How bad that gets really depends on when the Strait of Hormuz actually opens up.
00:00:09.519 --> 00:00:13.039
Yeah, I think higher prices is what we expect this winter to happen.
00:00:13.439 --> 00:00:16.640
The market does have a relatively short-term memory, typically.
00:00:16.640 --> 00:00:21.839
It doesn't really think beyond the last year or two when it's thinking about markets.
00:00:40.399 --> 00:00:47.759
Europe is heading into winter with low gas storage levels, LNG supplies under pressure and the Strait of Hormuz crisis adding further uncertainty to an already tight market. What could a cold snap in Q4 or Q1 mean for gas prices in Europe?
00:00:47.759 --> 00:00:56.000
I'm very pleased to be joined by Lawrence Walker, Deputy Editor in Chief of Montel News, and also who heads our fuels coverage. So a warm welcome to you, Laurie. Welcome back to the pod. I'd like to start off by asking you about gas storage. Where are we today compared to where we've been in previous years? Should we be concerned?
00:01:10.239 --> 00:01:13.519
Well, certainly we're a lot lower than we have been in previous years.
00:01:13.519 --> 00:01:17.200
I think we're about the lowest for at least 15 years for this time of year.
00:01:17.200 --> 00:01:21.120
But it's certainly down quite a lot from last year.
00:01:21.120 --> 00:01:21.599
So yes, we are at concerning levels.
00:01:24.159 --> 00:01:58.319
These low levels, Laurie, are they down to the fact that the Strait of Hormuz is closed, or are there other reasons for it?
00:01:58.719 --> 00:01:58.879
Yes.
00:01:58.879 --> 00:02:02.000
I mean there's a sort of a number of reasons.
00:02:02.000 --> 00:02:05.439
Obviously, primarily it is the issue in the Middle East.
00:02:05.439 --> 00:02:11.919
We've lost a fifth of global energy supply, so that's a fair chunk to lose.
00:02:11.919 --> 00:02:13.039
It's hard to replace.
00:02:13.039 --> 00:02:30.800
It's global, so even though we didn't necessarily take so much from Qatar or from UAE in pre- in past years, the fact that it's missing from the market means that we're just gonna have to fight more aggressively for any remaining supplies or any alternative supplies.
00:02:30.800 --> 00:02:33.120
So, yes, it is an issue.
00:02:33.120 --> 00:02:36.319
I think there's also an element of complacency among importers.
00:02:36.319 --> 00:02:40.560
You know, at the beginning of the war, I think there was an idea that it would last maybe over a few weeks.
00:02:40.560 --> 00:02:43.919
It's continued, then it was perhaps it would last into the summer.
00:02:43.919 --> 00:02:46.319
It's continued now it's you know till Christmas.
00:02:46.319 --> 00:02:50.240
It's a bit like we had back in 2022 with the war in Ukraine.
00:02:50.240 --> 00:02:58.240
So people kept initially being fairly optimistic that things would end, and then you realise after a while you're sort of digging in for the long haul.
00:02:58.240 --> 00:03:07.360
And as a result, I think a lot of people put off buying as much gas as they should have done or could have done earlier on, in the hopes that they will be able to do so later.
00:03:07.360 --> 00:03:12.319
Obviously the price plays into that as well, so the prices haven't been attractive for stockpiling.
00:03:12.319 --> 00:03:21.280
We've had the market either in liquidation or at least very flat, so it doesn't really incentivize buying today to use your gas in in a couple of months' time.
00:03:21.919 --> 00:03:29.039
We'll hear the guests on the podcast talking about 2022 and there'll be some comparisons.
00:03:29.039 --> 00:03:32.719
But when you say fight aggressively, Lori, what do you mean?
00:03:32.719 --> 00:03:38.240
Fight aggressively for LNG means basically pay a lot more than we're than we currently are.
00:03:38.639 --> 00:03:39.039
Yes.
00:03:39.039 --> 00:03:55.919
Well, our primary competition is going to be with with Asian buyers, so with China, with India, with Japan, with all other countries in the Pacific basin that are also likely to want this extra LNG over the winter period.
00:03:55.919 --> 00:03:57.599
We've been lucky so far.
00:03:57.599 --> 00:04:00.400
The Asian demand hasn't been as strong as it could be.
00:04:00.400 --> 00:04:07.360
In fact, I think we're down quite substantially from the sort of import levels they had even in in July.
00:04:07.360 --> 00:04:23.360
But it's still it's still a concern if they get a very cold streak of weather, if they have a problem with other you know, if there's some outages, there's some other issues whereby they need more supply, they're gonna pay up for it, and then we're just gonna have to pay even more to get to get the supply to Europe.
00:04:23.759 --> 00:04:27.839
And it all hinges on the weather for the Q4 and Q1.
00:04:27.839 --> 00:04:30.879
Laurie, thank you very much for setting the scene for us this week.
00:04:31.839 --> 00:04:43.680
With Europe's gas balance already looking tight heading into winter, the question now is how much LNG can fill the gap and what that means for prices if supply comes under further pressure.
00:04:43.680 --> 00:04:49.120
Well, I'm delighted to be joined by some of the foremost energy experts in Europe.
00:04:49.120 --> 00:04:51.519
Trevor Sikorski of Energy Aspects.
00:04:54.879 --> 00:05:05.600
Yuriy Onyshki of LSEG, and Tony Jordan of Energy Price Intelligence.
00:05:08.879 --> 00:05:11.120
I think I'd like to start with you, Yuriy.
00:05:11.120 --> 00:05:15.439
Can you give us a snapshot of the European gas market today?
00:05:15.439 --> 00:05:17.839
Where are we in terms of supply and demand?
00:05:18.160 --> 00:05:24.160
This summer, the we didn't have as much of storage injections as we would like to.
00:05:24.160 --> 00:05:35.279
And as of Monday, European storages are now at uh 67% fullness, which is a lot less than we would like to have.
00:05:35.279 --> 00:05:44.639
And I think this is the lowest level in like five, seven years, which puts European gas balance in in a very kind of shaky position.
00:05:44.639 --> 00:05:59.600
And the reason we came there is clearly because of the geopolitical factors and escalation in the Middle East that deprived the global market of a lot of Qatari and other LNG cargos.
00:05:59.600 --> 00:06:11.839
And instead of pulling more LNG into European, particularly into the European Union, Europe, we took less because there was a lot of competition with Asian buyers.
00:06:11.839 --> 00:06:23.839
Also, we ended last winter at a lower level than the previous winter, so that kind of got us on a bit of a tight rope here.
00:06:23.839 --> 00:06:32.800
So this is where we are with low stocks and you know I know unforeseen weather conditions ahead of us in winter.
00:06:33.040 --> 00:06:33.439
Absolutely.
00:06:33.439 --> 00:06:38.160
Thank you, thank you very much for placing the context in which this discussion can then continue. Trevor, are you concerned going into winter? Should we be concerned?
00:06:43.120 --> 00:06:45.040
Of course we should be concerned.
00:06:45.040 --> 00:06:47.839
We live in the state of being concerned, Richard.
00:06:47.839 --> 00:06:48.319
Absolutely.
00:06:49.040 --> 00:07:00.000
I mean, certainly when you look at one of the key metrics that the global gas market always looks at, that's where are you gonna be with storage at the end of October?
00:07:00.000 --> 00:07:03.040
Because that's what's gonna see you through the winter.
00:07:03.040 --> 00:07:09.040
And we're probably gonna end up around 76, 77 BCM.
00:07:09.040 --> 00:07:13.920
We look at that's probably in the low 70s as a percentage.
00:07:13.920 --> 00:07:17.519
It always depends on how you draw your storage borders.
00:07:17.519 --> 00:07:19.120
But that's that's low.
00:07:19.120 --> 00:07:22.000
I mean, you know, under any consideration, that's low.
00:07:22.000 --> 00:07:27.839
Last year, when you looked at last winter, we probably had withdrawals of about 60 BCM.
00:07:27.839 --> 00:07:31.839
So if you had a similar winter, and last year was kind of normal, right?
00:07:31.839 --> 00:07:39.680
I mean, I had periods of mildness, periods of coldness, but it came out over the whole winter as is is fairly normal, more close to normal.
00:07:39.680 --> 00:07:50.319
That that was as you know, as 61, 62 BCM, you know, carry out, that would leave uh end of you know winter stocks at 16 or 17, and that's just normal weather.
00:07:50.319 --> 00:07:53.199
And so that is that's really low, right?
00:07:53.199 --> 00:07:58.240
When you look at where we came out, as Yuri said, we'd we'd ended pretty pretty low last year.
00:07:58.240 --> 00:07:59.680
That was about 31.
00:07:59.680 --> 00:08:02.560
You know, we're talking maybe of ending about 16.
00:08:02.560 --> 00:08:14.480
And that, of course, was with the a full complement of LNG in the market, and you're looking at going through the winter without that full complement of LNG in the market because the strait hasn't opened yet.
00:08:14.480 --> 00:08:16.000
There's no normalization.
00:08:16.000 --> 00:08:18.160
It's very hard to know when that's going to happen.
00:08:18.160 --> 00:08:35.519
So when you're looking at all of these things, you say, well, if we have a cold winter, there's a real chance that areas of the European gas grid would have to look at losing load and disconnecting big loads and things like that just to get through the winter.
00:08:36.000 --> 00:08:38.480
And what areas of Europe would that be, Trevor?
00:08:39.840 --> 00:08:47.440
I mean, it's usually, because of where LNG comes in, and you know, and certainly we're still quite dependent on LNG.
00:08:47.440 --> 00:08:52.000
We still take very little Russian gas, and that's you know, never going to change.
00:08:52.000 --> 00:08:58.720
That's probably gonna be your more Central European markets, which are gonna be the ones that are gonna have to work the hardest to try and get that.
00:08:58.720 --> 00:09:08.080
There are like patches of Western Europe where the storage facilities look quite low, and we'll probably end, you know, end the injection season quite low.
00:09:08.080 --> 00:09:15.200
But you'd see a lot of that risk being kind of more probably in the central central European areas, but that isn't a rule out.
00:09:15.200 --> 00:09:18.480
You could have some localized difficulties in Western Europe as well.
00:09:18.720 --> 00:09:19.120
Absolutely.
00:09:19.120 --> 00:09:21.200
So, Tony, what's your view here?
00:09:21.200 --> 00:09:25.519
There's a huge regional variety, isn't there?
00:09:25.519 --> 00:09:31.919
I mean, like UK has very little storage, Italy's storage levels are very healthy, whereas other parts, as Trevor mentioned, are very low.
00:09:32.480 --> 00:09:42.000
Though Europe's made quite a substantial injection into storage over the summer, it's still well below where we would normally hope for it to be.
00:09:42.000 --> 00:09:49.200
I mean, this time last year it was probably around 80%, and as Yuriy said, it's kind of around two-thirds full right now.
00:09:49.200 --> 00:09:52.399
So it is behind where we'd ideally like to have it.
00:09:52.399 --> 00:09:58.240
And as you just touched on, I think there's there's a couple of countries that are looking more comfortable than others.
00:09:58.240 --> 00:10:04.480
For example, Germany and Netherlands are two of the big four, if you like, of capacity holders of storage.
00:10:04.480 --> 00:10:07.919
They're sitting just around 50-55% full.
00:10:07.919 --> 00:10:17.200
So so there is a bit of uh divergence between which countries are are contributing towards that two-thirds uh fullness.
00:10:17.200 --> 00:10:23.039
But I don't think percentage alone tells us that the system itself is secure.
00:10:23.039 --> 00:10:33.440
I think it's, we need to look at the volumes that are being injected and that's really what we're closely watching at the minute, rather than just the percentage it itself.
00:10:33.440 --> 00:10:51.360
So I think that the market's kind of pricing thinner margins and thinner flexibil flexibility and flexible availability of storage this winter, especially if we consider things like having a cold snap or any further disruption to supply.
00:10:52.080 --> 00:10:52.480
Absolutely.
00:10:52.480 --> 00:10:56.879
So what are the options on the table, Yuriy, to fill these these gas storage facilities?
00:10:56.879 --> 00:11:03.840
I mean, the EC has said there's gonna be no intervention, the German government seems to be very sanguine about it, you know, it's no problem.
00:11:03.840 --> 00:11:05.360
What are the options?
00:11:05.679 --> 00:11:10.720
Very high prices or, yeah, I was about to get there.
00:11:10.720 --> 00:11:33.440
I think there's very limited flexibility, but there is one I mean, for instance, if you look at Norwegian supply, it's maxed out and it will be the Econom already said I think a month ago that they're trying to send as much as possible buying the maintenance is also the winter, you know, they try to kind of send us as much as possible, anyways, through the winter.
00:11:33.440 --> 00:11:41.759
Also, I think there's not much room for a demand destruction in Europe post-2022, which has already happened.
00:11:41.759 --> 00:11:48.080
Now, in terms of further supply, I think the only flexible adjustment is through LNG.
00:11:48.080 --> 00:11:56.720
And that means again, you have to overcompete with the you know alternative buys of these uncommitted cargoes in the Atlantic, you know, West Africa.
00:11:56.720 --> 00:12:14.960
So again, yes, if there is, I don't know, weather drops below a certain point or gets colder suddenly or very cold, of course, that will result in prices because the only alternative is stock depletion, which is not quite what we would like to have by the end of the winter, particularly.
00:12:14.960 --> 00:12:25.200
So, yeah, I think the colder it gets, the further into the winter we get, we might be susceptible to to these price strokes again in order to bring more LNG.
00:12:25.200 --> 00:12:36.240
Now, back in 2022, European countries did not have such a vast such a big number of LNG terminals.
00:12:36.240 --> 00:12:46.240
Now we have that, and that you know there's a lot of capacity to bring additional volumes, and I think you know that's the prices that we'll have to adjust in order to bring that volume.
00:12:46.559 --> 00:12:49.360
But there's a there's a global competition out there, isn't there, Trevor?
00:12:49.360 --> 00:12:51.840
I mean, how is Europe gonna compete here?
00:12:51.840 --> 00:12:59.440
We've seen weekly LNG imports in Europe decline since you know some highs around in July.
00:12:59.440 --> 00:13:01.360
What's the outlook going forward?
00:13:01.360 --> 00:13:05.360
How will Europe compete, especially with Asian buyers?
00:13:05.759 --> 00:13:07.840
This is what global gas prices do, right?
00:13:07.840 --> 00:13:11.360
So they want to you know they want to equilibrate the system.
00:13:11.360 --> 00:13:17.679
And so you are looking at where do you get demand destruction first, you know, and in demand turndowns.
00:13:17.679 --> 00:13:25.039
And like Yuriy said, we're already pricing gas out of completely out of the power merit.
00:13:25.039 --> 00:13:32.159
So where does in Europe and you know, for Spot LNG, it's doing that in Asia already.
00:13:32.159 --> 00:13:34.879
So where else do you get demand reduction?
00:13:34.879 --> 00:13:40.240
And probably the place where you could get demand reduction is more in the Asian buyers, right?
00:13:40.240 --> 00:13:45.840
But you then have to, you have to pay up to those prices.
00:13:45.840 --> 00:14:06.320
And you're really looking at that kind of substitution being a lot in gas that goes into transport, because you can't you know that is something that you can price out, but then you're pricing out against diesel predominantly, and of course diesel prices and product prices are also being affected by the closure of the Strait of Hormuz.
00:14:06.320 --> 00:14:21.440
So, when you're looking at how prices, if you get into, let's say we have a cold Q4, then all of a sudden the weather risk looks very, very high, and people will have to start to pay up to get that additional demand reduction.
00:14:21.440 --> 00:14:27.679
And you're really looking at that demand reduction probably happening in China where you have a lot of compressed natural gas going in.
00:14:27.679 --> 00:14:34.000
You're probably looking a bit in certainly South Asia, South Asia we're already seeing some of that demand reduction.
00:14:34.000 --> 00:14:38.080
Pakistan's had two tenders that they haven't filled because it's been too expensive.
00:14:38.080 --> 00:14:45.919
So you are getting, you are starting to already see at 75, right, that those kind of demand turn downs.
00:14:45.919 --> 00:15:00.080
But I would think, to begin to say we're going to be more expensive than diesel given where diesel prices have gone, you are looking at prices that are considerably higher than this, and where, you know, you're looking at maybe 100 euros per megawatt hour.
00:15:00.080 --> 00:15:33.200
So you are looking at there is a lot of upward price risk that could be realized if you get into a place where it'll particularly if we have a colder than normal, I would say, Q4, then you know, heating demand would be high in Europe, and that would start to cause rapid, a much more rapid stock depletion than probably the European gas market's going to be that comfortable with to get through Q1 when of course you can have additional, cold weather or cold weather episodes and you have a lot of weather risk.
00:15:33.200 --> 00:15:39.600
So I think that's, it is that global competition, it becomes the global competition for what's left.
00:15:39.600 --> 00:15:45.840
How bad that gets really depends on when the Strait of Hormuz actually opens up, right?
00:15:45.840 --> 00:15:48.879
And that's kind of anyone's guess.
00:15:48.879 --> 00:15:54.240
You know, I mean we have an operating assumption that it happens by the end of the year, but that's just an operating assumption, right?
00:15:54.240 --> 00:16:01.360
We don't have any logic as to as to why that's a good date, right?
00:16:01.360 --> 00:16:04.879
It could be much longer, it could be earlier, it's just very, very hard to call.
00:16:05.120 --> 00:16:08.799
So could it even be closed for the first six months of next year?
00:16:08.879 --> 00:16:14.320
There's no way of knowing what the current US administration is going to do.
00:16:14.399 --> 00:16:14.960
Exactly.
00:16:14.960 --> 00:16:23.679
It seems to waver quite quite a lot over the just the course of a few days, and and especially when the signs are that the oil price is hitting a certain level.
00:16:23.679 --> 00:16:31.279
But Trevor, if I understand you right, so cold weather, depleted gas storage, Strait of Hormuz remains closed.
00:16:31.279 --> 00:16:34.480
We could see prices in the 100 euro MWh plus.
00:16:34.879 --> 00:16:36.320
Yeah, that's absolutely possible.
00:16:37.120 --> 00:16:39.279
I wouldn't see that as unlikely, right?
00:16:39.679 --> 00:16:40.720
Maybe even 150.
00:16:41.039 --> 00:16:50.159
Yeah, I mean it depends where it needs to get to where the market prices need to get enough turn down on demand to get us through.
00:16:50.320 --> 00:16:52.320
So what's your view here, Tony?
00:16:52.639 --> 00:16:53.679
I tend to agree.
00:16:53.679 --> 00:17:02.720
I think the market is definitely showing signs of what we saw back in late 2021, which was just five years ago, not that long ago.
00:17:02.720 --> 00:17:09.519
We saw rising prices, we saw lower storage across Europe, very similar levels to what we're seeing now.
00:17:09.519 --> 00:17:11.920
We saw a supply consent.
00:17:11.920 --> 00:17:17.440
Okay, it's a very different one to what we're seeing now, but all of the hallmarks are there.
00:17:17.440 --> 00:17:26.960
And we saw the price rise from pretty much where it is now, it went through 100, and by Christmas it was 150 euros per megawatt on the TTF front month.
00:17:26.960 --> 00:17:31.759
So, so back then that was unimaginable price levels.
00:17:31.759 --> 00:17:36.480
Now we've seen them and go obviously far beyond that throughout 2022.
00:17:36.480 --> 00:17:39.119
So they're now not unimaginable prices.
00:17:39.119 --> 00:17:46.480
They're actually we could realistically get there, and it wouldn't be as big a surprise as it perhaps was five years ago.
00:17:47.200 --> 00:17:53.759
But is there also a danger, Tony, that the EU is being held ransom by the US of energy supplies here?
00:17:53.759 --> 00:17:55.839
I mean, we really have no very few other options.
00:17:56.319 --> 00:17:58.000
And I think that's the crux of it.
00:17:58.000 --> 00:18:06.640
You know, we've Europe has turned away from Russian pipeline supply, which was kind of always there, readily available.
00:18:06.640 --> 00:18:13.599
We've made a conscious decision to move away from that, which at the time was itself an unimaginable feat.
00:18:13.599 --> 00:18:21.279
It was how could Europe possibly shift 40-odd per cent of its supply to another source?
00:18:21.279 --> 00:18:23.839
But it has managed to do that over the last few years.
00:18:23.839 --> 00:18:26.960
You know, it it's been an amazing feat.
00:18:26.960 --> 00:18:32.799
The slight issue we have now is the the source that we've turned to is now under threat itself.
00:18:32.799 --> 00:18:39.039
And so it becomes a similar kind of process that we're going through.
00:18:39.039 --> 00:18:43.680
But again, it's not a vast quantity that's stuck in the Strait of Hormuz.
00:18:44.400 --> 00:18:54.640
It is you know a a sizable percentage, but we are, of course, reliant on lots of US LNG, so you know that that's still very much on its way.
00:18:54.640 --> 00:19:01.200
But as always, we're competing with other markets and Asian competition is as always there.
00:19:01.200 --> 00:19:04.640
It may be just more heightened this winter than in previous years.
00:19:04.960 --> 00:19:10.000
Yuriy, I would also like to ask you about your price expectations for Q4 and Q1.
00:19:10.000 --> 00:19:12.799
So Trevor and and Tony have made their views quite clear.
00:19:12.799 --> 00:19:13.839
What's your view?
00:19:14.160 --> 00:19:24.079
Don't have a number in mind, but I would agree with experts that Yeah, I think higher prices is what we expect this winter to happen.
00:19:24.079 --> 00:19:28.559
It all depends on how tight the market gets.
00:19:28.559 --> 00:19:31.200
The tighter it gets, the higher prices we get.
00:19:31.200 --> 00:19:35.920
If it gets colder, it will get more price higher prices and it gets really, really cold.
00:19:35.920 --> 00:19:39.920
Particularly, I think we are susceptible now where there's like a short-term shocks.
00:19:39.920 --> 00:19:59.119
If like a weather forecast turns really cold ahead for the for the next maybe a couple of weeks, we suddenly, yeah, that will immediately be reflected in a kind of short-term price shock, which will inevitably bring more LNG cargoes and maybe other gas here and there.
00:19:59.119 --> 00:20:08.079
But yeah, I mean it's not impossible to see prices going all the way to 100 and above 100 Euros per megawatt hour.
00:20:08.480 --> 00:20:11.119
I think you guys are quite unanimous on that point.
00:20:11.119 --> 00:20:14.799
But there are other, in terms of supply coming on from next year, Yuriy.
00:20:14.799 --> 00:20:27.039
I mean, not far from you in in Romania, there's the the Neptune Deep project that's due to come online in if I'm not wrong in 2027, what will that what would the impact of that be?
00:20:27.039 --> 00:20:29.839
Do you expect that to be delayed?
00:20:30.319 --> 00:20:46.640
Well, I will have to see how this comes along and what's the initial output is and because we've seen here and there, for instance in Denmark, there's some smaller projects coming along and delayed because of some some technical hurdles.
00:20:46.640 --> 00:20:55.680
So I think until it's already on the table and flowy and stable and ramp up, it's hard to put to prices in.
00:20:56.000 --> 00:21:01.599
Trevor, Tony mentioned what happened in 21 and 22 in terms of prices.
00:21:01.599 --> 00:21:04.319
And we're now in 2026.
00:21:04.319 --> 00:21:07.599
You know, are we ready for another energy price crisis?
00:21:07.599 --> 00:21:09.839
Is that what's is around the corner here?
00:21:10.160 --> 00:21:12.880
I mean, you could argue that we are already there, right?
00:21:12.880 --> 00:21:19.599
I mean, in terms of crisis, you're looking at 70 euro you know per megawatt hour gas.
00:21:19.599 --> 00:21:27.839
I mean, it's extraordinarily expensive and extraordinarily painful for European, you know, industry and European power to use.
00:21:27.839 --> 00:21:36.880
So, I mean, I think all of that, the big question is as the price goes up, what's it actually doing, right?
00:21:36.880 --> 00:21:42.240
How much is it actually delivering in terms of additional volumes, right?
00:21:42.240 --> 00:21:57.680
As you get into, you know, let's say a really, really tight market, let's say storage gets really, really drawn down in Q4, then it is this kind of, well, if I go another 10 euros, how much, you know, how many more BCM can I count on in my European stocks, right?
00:21:57.680 --> 00:21:59.759
And the answer is not very much, right?
00:21:59.759 --> 00:22:05.519
And that's the problem because it will be well, not very much additional is going to come our way, right?
00:22:05.519 --> 00:22:08.319
So you have to add another 10, you have to add another 10.
00:22:08.319 --> 00:22:17.839
But it it does feel like we're already living through a high-priced, a high another high-priced European shock, right, at the moment.
00:22:17.839 --> 00:22:20.319
And the question is just how bad does it get?
00:22:20.319 --> 00:22:31.920
I mean, the flip side is if we have, you know, let's say mild, wet, windy, you know, Q4, then all of a sudden probably things don't look that bad, right?
00:22:31.920 --> 00:22:35.920
And probably some of the a little bit of the risk that in prices will come down.
00:22:35.920 --> 00:22:45.200
But I mean, we are in a, you know, what those low storage numbers are telling us is it's telling us it is a tight gas market going into the winter, right?
00:22:45.200 --> 00:22:51.440
And we've lost a huge amount globally again to contend with, right?
00:22:51.440 --> 00:23:06.880
So I mean, it is kind of what it is, but it it does raise questions for European policymakers all about, you know, is gas a reliable fuel, right?
00:23:06.880 --> 00:23:09.759
Happened in 2022, it's happened in 2026.
00:23:09.759 --> 00:23:12.720
Like, how often does this need to happen, right?
00:23:12.720 --> 00:23:28.720
And certainly in Brussels, you have seen, I would say, narratives about its important, yeah, how important it is for Europe to get off fossil fuels, particularly in its power market, right?
00:23:28.720 --> 00:23:36.799
But to do that just because we are so susceptible to what happens geopolitically around natural gas.
00:23:36.880 --> 00:23:40.559
What are the lessons that Europe needs to learn here, Tony?
00:23:40.559 --> 00:23:46.480
I mean, more renewables, less focus on gas, a diversified supply, you know, or all of the above?
00:23:46.559 --> 00:23:48.880
I think it's probably a mix of all the above.
00:23:48.880 --> 00:23:56.480
I think literally pulling away from fossil fuels is something that just physically can't happen.
00:23:56.480 --> 00:24:02.319
It's going to take some time, many decades, to be able to do that in reality.
00:24:02.319 --> 00:24:05.839
You've got lots of industry that relies on gas.
00:24:05.839 --> 00:24:09.759
You've got obviously some power generation that's quite reliant on it as well.
00:24:09.759 --> 00:24:12.400
So there's a real mix of things that need to happen.
00:24:12.400 --> 00:24:17.279
But but the European intent is certainly to move that way.
00:24:17.279 --> 00:24:19.359
And it's been that way for some time.
00:24:19.359 --> 00:24:27.359
I think it's just going to take a long time before we actually make progress enough for it to become impactful.
00:24:28.000 --> 00:24:40.720
I think just coming back to the point of the geopolitical interference, if we like, in gas markets, it has been around for quite a long time.
00:24:40.720 --> 00:24:44.000
It's been used for quite a long time across Europe.
00:24:44.000 --> 00:24:47.440
It's been a steady source of energy.
00:24:47.440 --> 00:24:49.920
It is only really two events.
00:24:49.920 --> 00:24:52.799
It just so happens it being fairly recent.
00:24:52.799 --> 00:24:57.680
And as I said earlier, the market does have a relatively short-term memory typically.
00:24:57.680 --> 00:25:02.559
It doesn't really think beyond the last year or two when it's thinking about markets.
00:25:02.559 --> 00:25:04.960
So yes, they're quite close together.
00:25:04.960 --> 00:25:13.359
Yes, they're kind of two major events, and energy markets, I think, more generally have become more global as we've moved to things like LNG.
00:25:13.359 --> 00:25:16.079
So we've naturally moved to a global market.
00:25:16.079 --> 00:25:22.079
I'm not sure we can sort of reintegrate that to be a more locally controlled market now.
00:25:22.079 --> 00:25:23.920
We've gone down that route.
00:25:24.240 --> 00:25:25.039
Yeah, absolutely.
00:25:25.039 --> 00:25:29.279
And I think what happens in the coming months and years is going to be absolutely crucial.
00:25:29.279 --> 00:25:38.319
Yuriy, you're based in Kiev, and we've certainly seen some very high-level visitors from the US in your city.
00:25:38.319 --> 00:25:41.200
And we've also seen them in Moscow.
00:25:42.400 --> 00:25:44.720
You're you're going into to winter, Yuriy.
00:25:44.720 --> 00:25:50.559
Obviously, there are serious concerns about the energy infrastructure that has been a target of Russian attacks.
00:25:50.559 --> 00:25:56.480
How how are you at all confident that there can be peace between Ukraine and Russia?
00:25:56.799 --> 00:26:00.400
Well, I don't think we moved a step toward peace at all.
00:26:00.799 --> 00:26:14.240
I mean what we've seen in the past two days, today's Monday, so yesterday and today, is while the US envoys were in town, Russia did not target Kiev.
00:26:14.240 --> 00:26:27.680
It targeted other cities, but not Kiev, in order to kind of you know, please, you know, and it is and we are confident that this targeting of energy infrastructure will continue.
00:26:27.680 --> 00:26:29.119
It has not stopped.
00:26:29.119 --> 00:26:36.880
It has it started in autumn of in the fall, in autumn of 2022, and it has not has not stopped since.
00:26:36.880 --> 00:26:39.359
It has slowed down.
00:26:39.359 --> 00:26:48.000
Last winter was pretty cold in Ukraine, and then it kind of specifically targeted energy infrastructure and goes well beyond gas.
00:26:48.000 --> 00:26:51.359
It's the power interest, the heating, you know, everything you see.
00:26:51.359 --> 00:26:54.880
I mean, I was recently in eastern part of Ukraine.
00:26:54.880 --> 00:27:01.599
As I was driving through, every second gas station was burnt to ashes.
00:27:01.599 --> 00:27:08.000
So the closer you get to the front line, this is where it gets really specific, really targeted.
00:27:08.000 --> 00:27:16.880
Any energy structure Russia can reach in Ukraine will try to target and to destroy in order to kind of try to win the war.
00:27:16.880 --> 00:27:41.759
So I mean the only thing here is to find back and to win there's no I don't believe that these negotiations by the means of diplomacy can bring peace because you know you remember when Trump came along he said I can end this war in 24 hours, and of you know it never moved to close there, and it's we are still there.
00:27:41.759 --> 00:27:47.119
So I think this is the reality we will live through this winter, maybe beyond.
00:27:47.440 --> 00:27:53.759
Unfortunately that's the case, Yuriy, but we're obviously all holding out the best, that's the reality, absolutely.
00:27:53.759 --> 00:28:01.599
Trevor, if you know, is Europe on track to phasing out Russian gas by September next year?
00:28:01.920 --> 00:28:04.559
Yeah, I mean this is it.
00:28:04.559 --> 00:28:16.720
I mean you could say, yeah, we have a lot of in store capacity that uses gas, but if you look at what's happened in the last five years since 2021, right, the reduction in gas demand across Europe has been enormous, right?
00:28:16.720 --> 00:28:28.319
So and I can't I really see no appetite to continue using Russian gas across most of the EU, right?
00:28:28.799 --> 00:28:32.240
There are some places where it's been an increase, isn't there?
00:28:32.480 --> 00:28:40.559
Well, even you know, certainly Hungary has changed, you know, and a lot depends on kind of leadership.
00:28:40.559 --> 00:29:04.640
But in terms of I think the wider thing of like, is Europe still invested in the energy transition, I would say I would have to say for now it still is, you know, and the bulk of the member states are still, still involved in that and still interested in getting that done.
00:29:04.640 --> 00:29:07.759
So I mean we are moving away.
00:29:07.759 --> 00:29:19.119
You know, a lot of gas-fired, power plants now rely on capacity markets because they just don't generate enough during peak summer, right?
00:29:19.119 --> 00:29:23.119
I mean, there's an awful lot of solar, there's an awful lot of wind.
00:29:23.119 --> 00:29:34.400
If anything, we have too much, we probably haven't invested enough in batteries, but we are starting to invest more in batteries, and you are seeing that any of that expenditure come in, which allows greater uses of that even so, right?
00:29:34.400 --> 00:29:41.759
So, I mean, for fossil fuel plants and power, that it is a difficult thing to keep those things running.
00:29:41.759 --> 00:30:04.079
We still need them for peak times, and you will still need them for, and certainly we even this year, you know, we have seen probably gas fire generation go up a little bit over the summer, mostly because the heat has been so extreme, it's driven eye load, and it also drives low hydro, and it tends to drive low nuclear.
00:30:04.079 --> 00:30:19.279
So you do then need the thermals for that, but I don't think there's any movement, you know, any real movement in Europe to continue using to go back to using Russian gas.
00:30:19.519 --> 00:30:19.839
Absolutely.
00:30:19.839 --> 00:30:21.680
Those times seem to have gone.
00:30:21.680 --> 00:30:26.960
Tony, just one question to you before I asked for a brief roundup. If the Straits of Amuse were open tomorrow, how would that impact the Q4 and Q1?
00:30:34.559 --> 00:30:35.839
Probably very little.
00:30:35.839 --> 00:30:47.039
The reality is that we've got this kind of open-close, open-close scenario for for well, for throughout the entire summer, really.
00:30:47.039 --> 00:30:48.960
One minute it's open, then it's not.
00:30:48.960 --> 00:30:55.039
So shipping through the strait right now is very high risk.
00:30:55.039 --> 00:30:57.759
I think no ship really wants to take that risk.
00:30:57.759 --> 00:31:02.400
Even if it is declared open, everyone's going to wait for someone else to probably go first.
00:31:02.400 --> 00:31:09.759
Coming back to specific energy, so LNG, Qatar Energy still need to ramp up their facilities.
00:31:09.759 --> 00:31:11.680
That's not an overnight job.
00:31:11.680 --> 00:31:14.000
That is many, many weeks potentially.
00:31:14.000 --> 00:31:17.440
We've then got lots of ships that are in probably the wrong place.
00:31:17.440 --> 00:31:25.359
They all need to queue up, dock, load, get out of the strait, you know, get to their destinations, unload, get back.
00:31:25.359 --> 00:31:34.000
So getting back to whatever normal is going to be in the future is going to take a long time, many weeks, if not many months.
00:31:34.000 --> 00:31:42.960
So wind two is probably going to be over by the time we get to that position, even if that was a reopening of the strait in the coming days.
00:31:43.440 --> 00:31:46.400
Final question, and I'm gonna ask each of you the same.
00:31:46.400 --> 00:31:50.319
And if you can just respond in one sentence, please.
00:31:50.319 --> 00:31:55.039
We've seen this energy price crisis over several years.
00:31:55.039 --> 00:31:59.759
How do we future proof Europe from such crises?
00:31:59.759 --> 00:32:00.640
Yuriy.
00:32:01.200 --> 00:32:05.200
Well, that's a difficult question, but to put in one sentence.
00:32:05.200 --> 00:32:14.480
I think some form of market mechanisms and I'd say mild regulation that we've already seen in the past four years.
00:32:15.920 --> 00:32:16.880
Thank you, Trevor?
00:32:17.920 --> 00:32:19.599
Electrify everything.
00:32:20.960 --> 00:32:23.119
That's also yep, a good answer, Tony?
00:32:23.599 --> 00:32:24.720
I think it's really difficult.
00:32:24.720 --> 00:32:31.920
I think we've just become a global market and we're now beholden to geopolitical events whether we like it or not.
00:32:32.559 --> 00:32:33.680
That's the new reality.
00:32:33.680 --> 00:32:38.240
Anyway, gentlemen, thank you very much for being guests on the Plugged In podcast.
00:32:38.240 --> 00:32:40.559
Always great to hear all your insights.
00:32:42.559 --> 00:32:46.960
And to you listeners, thanks for listening to this episode of Plugged In.
00:32:46.960 --> 00:32:56.559
If you enjoyed this discussion, please like, rate, and follow to make sure you get the latest podcast episodes as soon as we release them every Thursday.
00:32:56.559 --> 00:33:05.039
And finally, you can head to montelnews.com for more news and analysis from our team of journalists across Europe and beyond.
00:33:05.039 --> 00:33:06.559
See you next time.