Brent oil price this year
An early scare that, despite falling throughout the day, has left energy prices at very high levels. And the clearest result has been reflected in the price of light in Spain. The price set by the market for tomorrow Tuesday has been set at € 544.98 / MWh, according to Omie, the market operator. A level never seen before, a historical record with a MWh 102 euros more expensive than the previous record. The price of natural gas in the morning market has been key to this escalation in the price of light. To give you an idea, the price of MWh of electricity just a year ago, on March 8, 2021, was 54.43 euros. In other words, the average price on Tuesday in the wholesale market is 10 times higher than a year ago.
Price of electricity and gas this year
Average MWh price
The rise in energy prices clearly responds to the uncertainty of the invasion of Ukraine. It is not because there is a lack of supply or because there is an extraordinary demand. Russia has not turned off the tap and gas continues to flow normally, even through the pipeline through Ukraine. The impact of the rise in the price of gas on the generation of the price of electricity has led to more and more voices joining the petition that Spain has been moving to the European Union for months: without decoupling the gas from the electricity market. The current marginalist system means that the last energy to enter the market, usually gas, is the one that marks the price of all electricity generation. As gas is now very expensive, all light becomes more expensive, regardless of the generation source.
Brussels presents solutions
In the midst of rising energy prices, the European Commission will present a proposal on Tuesday to revise the European energy market to respond to a situation that is affecting households and businesses across the Old Continent. As European Commission President Ursula von der Leyen explained today, before meeting with Italian Prime Minister Mario Draghi in Brussels, the EU executive will put on the table a series of measures to respond to the energy crisis exacerbated by the war in Ukraine. These are measures that seek to improve energy sources, plan massive investment in renewables and improve energy efficiency to reduce Europe’s dependence on Russian gas and oil.
When electricity prices began to rise at the end of last year, Spain led a front in Brussels demanding that the situation be addressed through a joint purchase of gas, European strategic reserves and a review of the pricing system. Initially, Brussels, which was confident that the price increase was temporary, was particularly skeptical and closed the door to any revision of the European electricity system. But the war in Ukraine has changed things, and Brussels has been studying measures such as those demanded by Pedro Sanchez’s government for weeks. Von der Leyen has assured that a “reorganization” of the European electricity market will be addressed, to take more into account renewables, and will also emphasize the protection of the most vulnerable consumers and businesses. The Commission’s proposal will be discussed by leaders later this week at the informal summit in Versailles.
All this is happening in a context of growing pressure for the EU to further penalize Russia with a veto on oil and even gas purchases, but it is a measure feared especially by countries like Germany, which are highly dependent on the country’s energy sources. ex-Soviet. Although the EU has set out to drastically reduce Russia’s dependence by one year and has already established contacts with other suppliers such as Azerbaijan, Australia, the United States and Qatar, Germany does not see it at all clear. German Chancellor Olaf Scholz warned today that a ban on Russian oil and gas as part of Western sanctions against Moscow for invading Ukraine could jeopardize Europe’s energy security. “Europe has deliberately exempted Russia’s energy supply from sanctions,” it said in a statement. “Europe’s supply of energy for heat generation, mobility, electricity supply and industry cannot be secured in any other way at the moment. It is therefore essential for the provision of public services and daily life of our citizens “. Germany has already stopped the launch of the Nord Stream 2 gas pipeline that connects Russia with Europe without going through Ukraine.
It could be worse
“It could have been worse,” says Joaquim Daura, vice president of the Energy Efficiency Cluster of Catalonia. Spain has suffered two months of anticyclone that have brought down the wind and hydraulic generation, but in Europe there have been storms with a lot of wind and rain. In addition, the winter has not been very cold, nor in Asia, which has allowed to ship to Europe liquefied natural gas (LNG) ships. This situation, explains this expert, has made it possible to reduce European dependence on Russian gas a little, although it has made it more expensive in Spain.
According to Daura, the current rise in energy prices – despite rising prices for months – is not due to supply and demand tensions, “but to uncertainty over the attack on Ukraine.” “Gazprom has Europe as its first customer,” explains Daura, “and the possibility of a supply cut is what drives up prices, not the current lack of supply.”
The economic cost
The possibility, however, of doing away with Russian oil would come at a very high economic cost. Xavier Brun, director of UPF’s master’s degree in financial markets, recalls that Russia is the world’s second largest oil producer, with 10 million barrels a day. For every million barrels that are withdrawn from the market, the price will rise by about $ 10, and for every $ 100 that the price of oil goes up, world GDP will fall by 1%.