Cooler weather is set to increase demand for heating across Europe from next week adding pressure to already strained energy markets where price moves have become extremely volatile.
How bad the energy crisis gets all depends on the weather this winter. A spell of very cold weather could push markets into meltdown with record prices and increasing margin calls threatening to push some companies to the wall. If it’s mild it could mean a huge sell off.
The forecast for northwest Europe shows temperatures falling below normal next week and then again from November 8, according to Bloomberg’s model using Weather Company data. Wind generation is set to drop to low levels next week, crimping supplies just as demand for heating is likely to increase.
A low pressure weather system across the southeast is set bring cooler-than-normal temperatures to large parts of mainland Europe for next two weeks, Maxar Technologies said in emailed report. With a total of 40.6 heating degree days seen across the region for Oct. 13-17 period, compared with a 10-year normal of 32 days.
Markets are seeing the biggest price swings in history. Dutch front-month gas was up 8.7% on Friday at 105 euros ($121.25) a megawatt-hour, down from a record 162.13 euros on Wednesday. German power for November was little changed at 209 euros a megawatt-hour, down from a record of 350 euros, exchange data show.
“Everything is still up in the air as volatility remains extremely high,” trading company Energi Danmark said in a note.
Wind output is forecast to drop in the U.K. from Tuesday next week. The grid operator said in its winter outlook that electricity margins are tighter than previously expected and it’s likely to issue several market warnings indicating that power station operators need to increase supply to help balance demand.
In Germany, wind generation will be low most of next week before rising by Oct. 15, according to Bloomberg’s weather model.
Below-average temperatures are expected in the southern half of Germany for next two weeks, national forecaster Deutscher Wetterdienst said in emailed report. Very windy conditions in the east expected to expand across all of Germany from week starting on Oct. 18.