European energy wholesale and retail prices in Q1 2014 both benefited from a mild winter, which resulted in reduced demand and a subsequent oversupply. Renewable energies benefited from those circumstances. Crude Oil and Petroleum Products U.S. imports hit in 2013 a level last seen end of the 1990s. (eia, 2014) A slump in U.S. imports and expected stable market conditions throughout 2014 shape the expectation of unvarying price levels. The biggest note of interrogation is pending with the situation in Ukraine that could affect the energy prices massively.
The decline of energy prices in Q1 2014 has several reasons. According to Jörg Seide (Vattenfall) because of the mild winter the demand was lower and the “gas storages being filled above normal levels at this time of the year. This drives gas prices down and limits power prices” (Reuters, 2014) Seide also explains that besides the weather the strong euro pushed coal prices in Europe further down. It may also seem that the development over the last decade with the increase in renewable energies and a decrease in fossil fuels in Europe put pressure on prices. (Eurostat, 2014) According to Vattenfall’s analyst “exceptionally high power production by renewable energy sources in Q1 added to the low fossil-fired generation and created a bearish sentiment for the future” (Reuters, 2014)
The warmer seasons ahead we expect a consistent heating demand on a low level. In our judgement further expansion – foremost in Germany – of alternative energies will lead to a further weakening of the general energy situation throughout 2014 neglecting sentimental driven price spikes by political risks. The major threat for the second half of 2014 is the situation in Ukraine. 15% of Europe’s gas supply is crossing the Ukraine. Although the energy supply of Ukraine is ace for Russia we concur in Goldman Sachs analysts led by Jeff Currie (London) that “Gas exports to Europe are “an important source” of revenue for Russia, making reductions unlikely”. Citigroup expects a resolution “in the near term” of the threat of a cut-off of Ukraine. (Almeida, 2014)
The outlook for 2014 remains positive. After a good start in Q1 we expect the demand of products for alternative energies to remain on a good level. From national sides as well as from international developments and political issues we are optimistic for 2014.
Almeida, I. (2014, April 14). Goldman Says Russian Energy-Export Sanctions Are Unlikely. Retrieved April 30, 2014, from Bloomberg
eia. (2014, April 30). U.S. Imports of Crude Oil and Petroleum Products. Retrieved April 30, 2014, from U.S. Energy Information Administration
Eurostat. (2014, April 30). EU28 PRIMARY ENERGY PRODUCTION 1990 2012. Retrieved April 30, 2014, from European Commission – Eurostat
Reuters. (2014, April 4). European energy prices face weak spring. Retrieved April 30, 2014, from Reuters