A rollercoaster ride ahead in energy prices: Kearney

and natural gas prices have soared OIL, COAL, in the international markets, directly affecting all fields of the economy as energy is the main input for all business branches and a cost item that should be well-managed. The delayed demand has started to affect the global economy more quickly than expected with vaccination becoming widespread, according to Onur Okutur, Managing Partner of Kearney Turkey. “People have returned to freer consumption habits and factories have had to operate faster to meet the demand,” he said.

Okutur, who has been following national and international energy developments for many years, emphasized that other market players, which didn’t predict that the recovery would be so fast with China’s energy demand increase, have started to destock. “Stocks declined in natural gas storage facilities in the U.S. and Europe. LNG (liquified natural gas) vessels have started to deliver gas to China in fleets,” he added.

Europe is also in the middle of an energy crisis. Electricity and natural gas prices have started to soar even in September. Prices exceeded EUR 150 per megawatt hour in Spain two weeks ago and EUR 200-220 in the UK, according to Okutur.

“Product stocks in European natural gas storage facilities are quite low compared to the previous year. The fact that companies were late to prepare themselves following a slow summer was the primary cause. Severe winter expectations have raised interest not only in energy but in heating. The resulting panic has also increased prices.”

‘WE HAVEN’T ENTERED WINTER YET’

All these developments have also affected Turkey, based on Energy Exchange Istanbul (EPIAS) data. The average electricity price on the Day-Ahead Market, which generally hovers around EUR 35, rose to EUR 50-55 in the last two months. But there are also different mechanisms affecting price formation behind this, Okutur noted.

Market players have different expectations about how long the current levels will last. Although Kearney Turkey has discussed this with market players and various specialists, there is still no consensus. “It’s too early to say as we haven’t entered winter yet. But there’s a agreement that natural gas, electricity, and coal prices will be above last year’s levels in the short-term,” said Okutur.

Energy, especially electricity, can’t raise demand in an instant. The price of primary energy resources prevent many energy power plants from operating, Okutur adds. The price surge in raw material has raised electricity prices in Turkey, but not that high to reflect the rise in commodity prices.

WILL AFFECT THE END USER

Regarding the impacts on the consumer, Onur Okutur stated that they don’t foresee a demand increase that will reduce prices in the near future, because the market clearing price, considered an indicator in electricity, continues at the price cap level. “However,” he says, “there is accumulating energy in the system due to price cap implementation in electricity and price implementations of BOTAS Petroleum Pipeline Corporation. Prices may decline in the upcoming period after tariffs are updated or some regulations imposed on the Energy Exchange Istanbul (EPIAS) side. We think that this pressure will be reflected on the end user.”

With regards to efficiency, it’s better to consume energy more efficiently instead of building a plant due to low energy supply, according to Okutur. “Companies, manufacturers, unions in sectors such as iron-steel, cement, associations and chambers are working toward improving their efficiency. These studies can be extended,” he noted.

On the other hand, the three-month electricity and monthly natural gas tariffs will be announced on October 1. The foreign exchange rate and global energy price increases will be reflected on tariffs, Okutur said. “Prices of piped natural gas contracts are known, but an additional demand for heating is in question as we approach winter. This increasing demand is met by LNG imports. This cost increase should be reflected on the market,” he said, stressing that there have been cost increases from the past that have not been reflected on tariffs.”