The energy crisis, which has been developing all over the world since last year, continues to dictate the situation in the economy.
Volodymyr ShvedkyCEO of the energy provider ETG.UA, said Mind about current trends in natural gas and electricity trade, made a forecast about what will happen on the market this year, and also shared traders’ expectations from government policy in Ukraine.
What conclusions did 2021 lead to?
The past year showed the whole world that hydrocarbons will remain the dominant source of energy in the next decade. And the transition to renewable sources according to the “green” agenda will not happen as quickly as planned and desired by many who have adopted this order in recent years.
It seems that the leaders of the European Union understand this, if they recognized the atom and natural gas as transitional sources of energy on the way to a carbon-free economy. And they allowed to invest in nuclear energy until 2045, in gas infrastructure – until 2030.
In this context, it is imprudent and even harmful for Ukraine to quickly abandon traditional sources of energy until “green” initiatives take effect.
Hydrogen has become one of the top trends in the world economy. Programs for its application and projects for its implementation in the European Union, as well as the development of hydrogen strategies in individual countries and on continents by automotive brands, give hope for the emergence of a new generation of cars. This is another breakthrough for mankind from the point of view of both the evolution of machines and the preservation of nature. And he cannot help but please.
LNG as a source of pipeline supply diversification has proven its ability to quickly influence market quotes of natural gas in the EU and Asia. The US is already in talks with Qatar to increase supplies. The Turkish Bosphorus is in demand. It is time for Ukraine not just to look closely, but to independently prepare the infrastructure for accepting this alternative. I dare to assume that we will agree on profitable cooperation with Qatar. The example of ERU-Trading (purchase of American LNG through Poland) is inspiring.
What consequences of the energy crisis should be prepared for?
It would be naive to believe that the peak of the energy crisis has passed. The next few years will see an ongoing battle for dominance in energy markets. And natural gas price jumps will become a common occurrence for us.
The world was not ready for the rapid recovery of demand for energy resources in China. Global players and states – leaders in the economy could not predict the rapid increase in the need for hydrocarbons and coal. This led to significant increases in the cost of natural gas and fossil fuels in the first half of 2021.
The imbalance of supply and demand has led to consequences that our and neighboring economies will have to adjust to in the coming years. Let’s consider the main ones.
A tenfold increase in natural gas prices and a threefold increase in the cost of coal. The main operators of gas supplies took advantage of the shortage of these energy resources and the benefits from their price increase. For example, Russia’s Gazprom announced its expectation of a record net profit for 2021 at the level of 2 trillion rubles.
As predicted last fall, the rise in natural gas prices resulted in an unprecedented level of industrial and food inflation. Heads of European economies rushed to extinguish it, Ukraine among them. In January 2022, it became known that industrial inflation in Ukraine at the end of 2021 broke a 25-year record. The increase in prices was 62.2%. The intrigue for industrialists is how it will be “swallowed” by the end consumer.
The players of the retail gas market are out of the game. For many suppliers of energy resources, 2021 was a stress test: dozens of companies from Great Britain, the Czech Republic, and Germany abandoned this business. Those companies that have survived will review the models of their behavior in the market. Ukrainian suppliers found themselves in a more convenient position – so far we have not heard of a mass exit from the retail business. Therefore, the competition will strengthen.
It became obvious that energy prices will remain high for probably another one to three years. This means that the plans of many manufacturing companies are subject to change. As consumers, they will seek price fixation over long-term periods. This tactic of purchasing natural gas will allow them to minimize the risks of fluctuations in spot prices, make their businesses more stable and predictable in terms of profit. And we as suppliers are ready to make such offers to business clients.
The energy crisis will determine the behavior patterns of other energy market participants. The first thing that all consumers of energy resources will think about is how to reduce costs for these items, what energy efficiency programs to implement. I believe that this will lead to a decrease in industrial consumption of natural gas in Ukraine by 10% or more. Individual productions will be on the verge of losses and the need to survive under the pressure of high prices and energy dependence. Among them are chemical, glass production and metalworking.
Despite the volatility of quotations, natural gas will maintain the trend of a reliable source of electricity production and a clean source for balancing energy systems in the European economy.
Delay in the launch of Nord Stream 2 and limited supply of gas through the main pipelines will force EU countries to look for ways to diversify and optimize supplies on the terms of long-term cooperation.
What do energy suppliers expect from 2022?
Whatever experiments and tests the suppliers expect, we do not stop hoping for opening of the electricity market for the population. The monopoly must be destroyed in this sector as well. Ukrainians have the right to experience energy freedom and its advantages in purchasing electricity.
At the same time, we are waiting for state support for gas and electricity consumers, private and industrial. This would prevent the economy from collapsing in certain sectors.
Great hopes are placed on growth of commercial gas production in Ukraine. So far, the state-owned company cannot boast of positive dynamics in this regard due to the depletion of existing deposits and the lack of investment in new ones. I predict that the trend of increasing commercial production will continue in the next two to three years.
Obligations to the IMF – the market froze in anticipation exit of the state-owned company “Ukrgazvydobuvannya” to the gas resource exchange in May 2022. This can fundamentally change the internal structure of the Ukrainian wholesale market.
The 2021/2022 heating season will be completed with critically low natural gas reserves in the warehouses of Ukraine and the EU. Therefore, gas injection for the 2022-2023 season will begin earlier than usual – in April-May. This will not allow prices for blue fuel to fall in the off-season.
Preparing for the 2022/2023 heating season will be more difficult, than in the past season. It is necessary to draw conclusions, to work on mistakes. The main challenge of 2022 is to find funds for the purchase of gas for the upcoming heating season. According to our calculations, $8–10 billion will be needed for the successful completion of the season.
In February, the first tests of the operation of the United Energy System in isolated mode will take place. According to experts’ expectations, the testing will be successful. You can count on smooth certification with ENTSO-E and reliable operation in the United Energy System with Europe in the future.
We will continue to calculate electricity supplied to industry move from formulas to price fixing through long contracts and thus hedge the risks of rapid price fluctuations.
In an unstable and shaky energy market, the biggest expectation of the participants is the balance of government decisions. It is to be hoped that these decisions will not resemble an elephant in a dish shop. Investors will believe in the predictability and stability of the domestic energy sector, and participants will adapt to challenges with the least losses.
https://mind.ua/openmind/20235882-gazovij-rubizh-chogo-chekati-vid-svitovoyi-energetiki-2022-roku
