Coal, electricity, and natural gas prices are all rising sharply. What are the reasons?
With the advancement of carbon reduction actions, the world is moving towards "net zero carbon emissions." It stands to reason that "net zero carbon emissions" should mean: coal is oversupply, natural gas is adequately supplied, and electricity is close to zero, but this is not the current situation.
Global coal consumption reached its peak as early as 2013, but the price of thermal coal is currently close to the highest level in history and has more than doubled in the past few months to $180/ton. Liquefied natural gas has also risen from US$7/m3 to US$20/m3 in the past few months, setting a record high.
The price of natural gas in Europe has also risen, which in turn has promoted a sharp increase in electricity prices: the price of electricity across the European continent has risen from 50 euros/MWh to 150 euros/MWh, the highest level ever. Affected by the chain reaction, the price of aluminum has soared from US$2,000/ton at the beginning of the year to the current US$2,900/ton.
This is unusual, especially when the global economy has not fully recovered from the pandemic crisis. So what happened to the commodity market? Morgan Stanley global oil strategist and head of European oil and gas equity research Martin Rats (Martijn Rats) gave his explanation.
The recovery after the epidemic has been superimposed by unusually hot weather, and this year's power consumption has increased sharply. The process of smelting aluminum consumes a lot of electricity. As a result, aluminum production has decreased, global demand has continued to grow, and aluminum prices have soared.
On the other hand, the shortage of electricity supply has also led to a huge increase in demand for coal that can be used to produce electricity. Heavy rains in Indonesia, railway terminals in Russia and unrest in South Africa have disrupted coal supply. With the tightening of the coal market, global coal prices have rebounded.
The same factors also promote the rise of LNG. The drought in Brazil has reduced hydroelectric power production and pushed up the demand for liquefied natural gas. With the massive shutdown of liquefaction terminals, the global LNG market has tightened severely in the past few months.
Europe is the world's final market for LNG. However, as other regions have increased their import efforts,European LNG imports fell sharply this summer. At the same time, recent low offshore wind power generation in Europe has stimulated demand for natural gas.
However, the supply of natural gas from Russia and other regions is restricted, and Europe cannot build a normal level of natural gas inventory during the summer. Winter has not yet begun, and European natural gas inventories are unusually low at this time of the year. Considering that the price of natural gas largely determines the price of electricity, they have also soared.
What does this mean? We emphasize three conclusions:
·First of all, the commodity market is interconnected. One region will affect another region, and multiple commodities will eventually be interconnected.
·Secondly, it is difficult to predict the trend of commodities. It was generally believed that the supply of all commodities was sufficient, but as time goes by, the shortage of natural gas will become more and more serious.
·Finally, the safety margin of the world's energy system is of great significance to the future.
In the coming decades, the world will fundamentally change the way it produces and consumes energy. So far, the supply-side adjustment of the energy system has been faster than the consumption pattern. The world is still in the early stages of decarbonization, which creates the possibility of further instability and squeeze in the future. Its impact may extend far beyond the energy and commodity markets, spreading to everything from economic growth to inflation to politics.
Source: Golden Ten Data
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