European gas crisis seems to be on the wane

 

There are good signs that the European gas crisis that reached an alarming level during the past few weeks is finally easing, as the very natural factors that triggered it off, appears to be in the reverse mode.

As far as the United Kingdom is concerned, as of Tuesday, the share of renewables to the power grid has gone up from 27.8% last week to 42.1% this week. In proportion, the contribution from fossil fuels has gone down from 37.6% to 26.8% during the same period.

The power companies in the UK were forced to use gas and even coal, when the wind turbines could not produce estimated power for the national grid in the summer months due to slow winds.

As an inevitable consequence, the demand for gas shot up, defying initial estimates and so did the price of gas. Since the sudden demand for gas led to a supply crunch, power companies turned to crude oil – as the last resort.

During the short, but turbulent period, a few gas companies in the UK went bust, with a looming winter fuel crisis on the horizon.

Fortunately, the wind speeds in the UK in the regions, where there is a high saturation of off-shore wind turbines, are finally picking up. The weather model that I used at the top of this article forecasts a steady increase in wind speed in the coming days.

In addition, the weather forecasters believe that there will be warmer days ahead as we approach the winter. That means, the demand for natural gas will not be as acute as the predictions for the worst case scenario.

If the gas price does not go up at a faster rate, the crude oil price will reach an equilibrium too in the long run, safeguarding the interests of both producers and customers.

At present, the oil producers are under tremendous pressure from influential political realms to increase the production. The global economy as a whole, on the hand, will suffer irreversibly if the price keeps rising at this rate, which in turn will affect the oil producers as well.

The pandemic, meanwhile, is picking up the momentum once again, especially when the colder periods are ahead of us. In the UK, for instance, there are over 200 deaths and 40,000 confirmed cases as of Wednesday.

We need to take into account the crude inventory build-up in the US, the world’s top consumer as well; for three successive weeks, it has been growing by significant amounts, when analysts expected the exact opposite.

In this context, it is in everyone’s interest to keep the price of crude oil at a reasonable level, while protecting both producers and consumers for the months ahead.