The “schizophrenia of electricity prices” was a term coined in one of the power economics texts. It was a very interesting phenomenon to have very low prices for months and suddenly experienced very high prices. It is as if electricity prices have bipolar mood swings. This winter, this analogy can be applied to LNG, grids, coal, and other commodities.
Commodities are having a bull year. My concern, as I previously stated, is the food prices. High food prices and low oil prices do not mix well in the Middle East. But we were not contemplating a pre-2008 like bull run either. Now the central banks are printing money like never seen before, and China is growing like 2005-2007 as if there are no covid related problems. So there are two diverging, very diverging trends. This generally collapses.
As we talked about Black Lives Matter movements and ramifications, we have seen the Capitol raid by white supremacists. A world in balance is a very rare thing. One imbalance triggers another one, and that one triggers another one. Covid, unemployment, Trump all created a new dynamically erratic order. It is not likely to settle soon. Out of nowhere, we have seen Whatsapp assaulting individual freedoms nearly overnight. It seems like the end of an era.
The energy system is a mirror of human activity and livelihood. These tides have created disturbances in investment, protectionist policies, change in the status quo. China blocking Australian coal exports caused power outages in China, and coal price hikes around the world. Gas prices suddenly increased due to other problems. LNG prices have seen an unprecedented 30+$/mmbtu. Japan has panicked, Europe is about to undergo a cold period.
Last Friday, a split system event in Europe was even a more disturbing thing. The demand is not as strong before. The covid wounds are not healed yet. My fear is the underinvestment of electricity generators due to collapsing prices. This may create system risks that can not be predicted easily.
A few months ago, we talked about negative oil prices, never to rise again LNG price levels—no final investment decisions in LNG projects due to low prices. France is rejecting US LNG on the grounds of emissions. OPEC+ blunder that we thought prices would never rise again. Now, Saudi Arabia is unilaterally cutting one mb/d to sustain the OPEC+ agreement. It looks as if the political instabilities and sudden changes are infecting the energy realm.
Wherefrom now on? Growth is a priority, but growth needs predictability. Predictability is lost, and the disturbances started. I do not think volatilities or system problems will end soon. Our fossil energy system was built on the predictability that fossil fuels provide. We have to depart from that. We have to create a new predictable realm based on renewables. Moving from one stable point to another future stable point is mostly chaotic. The energy transition is such a journey.
We have to be ready for more disturbances and have to adapt to this unstable environment. The biggest concern is energy consumption. Yes, markets and systems can act in completely unpredictable moods, but consumers get confused easily and may be harmed. Better to inform and protect the customer about what energy transition and coming age means.