With power demand recovering from the pandemic, European utilities are using more coal as natural gas inventories are unusually low for this time of the year due to a cold snap in late winter and early spring.
This year, despite the record-high carbon price in Europe, the use of coal for power generation has jumped by up to 15 percent, Andy Sommer, team leader of fundamental analysis and modeling at Swiss trader Axpo Solutions, told Bloomberg in an interview published on Tuesday.
"Gas storage is so low now that Europe cannot afford to run extra power generation with the fuel," Sommer told Bloomberg.
Natural gas stockpiles are some 25 percent below the five-year average, and with such a right gas market, utilities run more coal-fired power generation, analysts say.
Europe had already started to restock with natural gas following a harsh winter that drained inventories when a cold snap in April caused unusual additional withdrawals from storage.
"A cold snap in April caused a counter-seasonal net withdrawal of inventory, worsening the storage situation which for several months has been running below seasonal averages," Wood Mackenzie said in its Q2 LNG short-term trade and price outlook at the end of May. Related: The Worst Setback For The Solar Boom In A Decade
As a result of the low levels of natural gas in storage, the price of the Dutch TTF gas, the European benchmark, has rallied by over 50 percent so far in 2021. Prices are close to the highest level for late spring since 2008, according to Bloomberg estimates.
With the ultra-tight gas market, power generation from coal is rising in Europe, despite the record-high EU carbon price, which exceeded US$60.50 (50 euro) per ton in early May.
The current situation with the power mix in Europe is indicative of the challenges the continent and the European Union face in their push to make the grids greener.
Coal use in power generation is also on the rise in the United States, where the price rally in natural gas is discouraging parts of gas-fired electricity generation and is set to give coal a short-term boost this summer.
By Tsvetana Paraskova for Oilprice.com
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Comments
1- Renewables on their own can’t satisfy the electricity needs of the EU because of their intermittent nature.
2- Energy transition wouldn’t succeed without major contributions from natural gas.
3- The EU’s dependence on Russia’s gas supplies is irreplaceable. The completion of the Nord Stream 2 this year will enhance Russia’s pivotal role in the EU’s energy needs.
4- The EU tends to talk big and lectures the world about net-zero emissions by 2050, yet it won’t stop the use of coal for electricity generation when in need.
5- The global economy will continue to run on oil and gas throughout the 21st century and probably far beyond.
6- The notion of net-zero emissions by 2050 or 2100 or ever is an illusion.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London