(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Nov 20 A return to rising world coal
prices next year would underscore the European Union's energy
dependence, given global gas prices also appear on a long-term
European coal import prices have this year fallen following
a shale gas boom which suppressed U.S. power prices and coal
But the forward curve projects steadily rising benchmark
prices, presumably based on expectations of returning demand
from Asian emerging economies including China where government
stimulus efforts are expected to kick in (see Chart 1).
The forward curve suggests a return to levels seen either
side of peak European coal import prices in 2011.
That is bad news for European wholesale power prices
recently suppressed in countries able to substitute gas for
For example, German power prices have fallen even as gas
prices rose, reflecting lower power demand and growing use of
cheap coal and zero marginal cost renewable energy (see Chart
In Britain, by contrast, particularly exposed to gas and
with less renewable energy, power prices have risen compared
with levels at the start of 2011.
The EU-27 has seen a more than doubling of imports of U.S.
coal since 2009. (see Chart 3)
In the first half of 2012, Germany, Italy and the
Netherlands respectively imported 37 percent, 83 percent and 86
percent more hard coal from the US than in the first half of
2011, according to European Commission data published in last
week's "Quarterly Report on European Gas Markets".
Chart 1: link.reuters.com/daj24t
Chart 2: link.reuters.com/faj24t
Chart 3: link.reuters.com/gaj24t
Higher coal prices would remove a buffer against higher gas
prices and expose the EU vulnerability to globally traded
Global traded LNG prices have risen on the back of demand
from Japan (following the Fukushima nuclear crisis) which has
replaced a U.S. collapse (following a domestic shale gas boom).
That rising trajectory in LNG prices may now be a long-term
trend, reversing a previous dip.
"There is no guarantee that with recovering demand for
natural gas in the EU, relatively cheap LNG ... will continue to
be as easily or cheaply available as in recent years," said the
EU quarterly market report.
"The significant falls in imports of LNG currently being
observed in the EU (in excess of falling consumption) could be a
first warning sign," it said.
The trouble for the EU is a high energy dependency, which
has recently fallen, just slightly, to 52.7 percent from a 2008
peak of 54.6 percent, as reported in the European Commission's
"Energy Markets in the European Union in 2011", published last
Import dependency is measured as the ratio of net energy
imports to total consumption.
The EU's executive Commission has several approaches to
curbing its vulnerability to global energy prices, including:
increased investment in cross-border transmission capacity to
balance EU-wide energy demand and supply better; and more
investment in indigenous resources including renewable energy.
The trouble is that both are incredibly capital-intensive.
The Commission reports that Europe's energy system requires
investment of 1 trillion euros ($1.28 trillion) by 2020 to
secure the bloc's security of supply.
Some 750 billion euros of that total is required in power
generation and electricity and gas networks, alone, it says.
That partly reflects a massive shortfall in installed
renewable energy, for example, compared with binding 2020 goals
under the bloc's energy and climate policies.
Installed renewable power capacity reached 288 gigawatts
(GW) as of 2010, way short of the level of 487 GW which
countries have committed to in 2020.
Member states have notified the EU of investment plans for
an extra 40 GW, some way short of the nearly 200 GW additional
capacity needed by 2020, the Commission reported in its briefing
paper, "Investment projects in energy infrastructure", published
It is tempting to view shale gas as a neglected plank in the
bloc's energy strategy, bearing in mind how it has curbed U.S.
A case in point is Bulgaria, which has the highest and
fastest rising gas price in the EU, at an average of 43.3 euros
per megawatt hour in the second quarter (compared with an
average UK market hub price of 24.5 euros), and which rose by
half again between the first half of 2011 and the first half of
In conjunction with Hungary and Romania it has technically
recoverable shale gas resources of 19 trillion cubic feet (tcf),
according to the U.S. Energy Information Administration,
compared with Bulgarian conventional natural gas production in
2010 of 0.002 tcf.
But it has maintained a ban on shale gas exploration using
hydraulic fracturing, alongside France which has the top or
second biggest estimated shale gas resource in Europe.
($1 = 0.7803 euros)
(Reporting by Gerard Wynn)