In this week's highlights: As Europe's energy crisis deepens and the impact of reduced gas flows from Russia start to show, Germany is to vote on a reprieve for coal-fired power, while geopolitical risk continues to engulf a volatile oil market.
- Uniper warns it could need state support (00:12)
- Vote due on German coal reprieve law (01:34)
- Geopolitical risk in a volatile oil market (02:38)
In this week's highlights:As Europe's energy crisis deepens, Germany is to vote on a reprieve for coal-fired power, while geopolitical risk continues to engulf a volatile oil market.
First, the fall-out from Russia's decision to curtail gas flows to Germany via the Nord Stream pipeline continues to pre-occupy the European gas and power markets, with growing fears of further disruption to Russian exports.
Buyers are now publicly acknowledging the significant impact the reduction in Russian flows is having, with Germany's Uniper warning that it could need financial support from the state given the high price of procuring replacement gas.
Uniper – one of the EU's biggest buyers of Russian gas – is receiving only 40% of its contracted supply from Gazprom since the Russian company cut deliveries through the Nord Stream pipeline in mid-June.
The situation will only get worse when Nord Stream closes completely for annual maintenance from July 11 until July 21.
Fears are also growing that Nord Stream may not return from its maintenance shutdown given recent supply behavior by Gazprom.
The German government has already provided funds to keep former Gazprom trading unit Gazprom Germania – now called Securing Energy for Europe - or SEFE – afloat to the tune of 10 billion euros.
Berlin is also providing billions of euros to buy gas to inject into the country's storage sites over the summer, but there are serious doubts about whether that Germany will hit its target of filling its storage to 90 percent of capacity by the start of November.
The German parliament is due to vote this Friday on a draft law clearing the return of some 10 gigawatts of coal, lignite and oil generating capacity currently in reserve. In parallel, the government has been finalizing ordinance to penalize gas burn in power plants in the event of a gas supply emergency – this it can push through without parliamentary approval. System operators have procedures to clamp down on demand, issue public appeals and, ultimately, ration supply. What is less clear is when and how governments might intervene with price caps.
Trading has already all but dried up as curve contracts climb higher, with French Q4-22 baseload price nearing Eur800 per megawatt hour last week.
And that takes us to our social media question for the week: Are we set to see governments intervening with price caps this summer? Tweet us your thoughts.
On the subject of price caps, last week's G7 summit in Germany saw a potential price cap on Russian oil being mooted as Western leaders ramped up the rhetoric against Russia. With oil prices remaining firmly above 100 dollars a barrel, the Kremlin's oil revenues have remained robust despite sanctions so far imposed.
Helping to keep the oil market bullish was news last week that Libya's oil supply is set to deteriorate further as it declared force majeure on crude exports out of two major terminals.
Meanwhile, eyes are back on the Iran nuclear talks again after a hiatus, with US and European officials continuing negotiations. If the US and Iran can agree to restart the Joint Comprehensive Plan of Action, oil sanctions relief as part of the deal could return as much as 1.5 million barrels a day to a tight global market that has few options for near-term incremental supply.
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