WEBVTT - Europe Breaks Up With Natural Gas 0:00:00.600 --> 0:00:03.600 Hi, I'm Dana Perkins and you're listening to Switched on 0:00:03.760 --> 0:00:07.120 the bienn F podcast. Today is all about natural gas 0:00:07.160 --> 0:00:09.280 and what we can expect as we look ahead to 0:00:09.320 --> 0:00:13.160 this winter. In the Northern Hemisphere, gas prices remain very 0:00:13.240 --> 0:00:16.920 elevated and security of supply is uncertain. Europe has been 0:00:17.000 --> 0:00:20.200 hit particularly hard by the reduced supply coming from Russia, 0:00:20.560 --> 0:00:22.880 and in all honesty, some demand reduction is going to 0:00:22.920 --> 0:00:25.640 be needed. While there may be enough gas to get 0:00:25.640 --> 0:00:28.680 through this upcoming winter, there's a lot to consider when 0:00:28.680 --> 0:00:30.960 we think about what might happen to the supply and 0:00:31.000 --> 0:00:35.000 demand balance in the months and years ahead. So today 0:00:35.080 --> 0:00:38.320 I sit down with Stefan Ulrich and Arun Tora, who 0:00:38.320 --> 0:00:41.519 are both European gas specialists at bienn e F, and 0:00:41.560 --> 0:00:44.879 they're going to talk about our winter gas outlook. We 0:00:44.960 --> 0:00:47.120 do these twice a year, once for the summer and 0:00:47.280 --> 0:00:50.319 once for the winter. As a reminder, bienni F does 0:00:50.400 --> 0:00:53.639 not provide investment or strategy advice, and our complete disclaimer 0:00:53.680 --> 0:00:55.160 can be found at the very end of the show. 0:00:55.560 --> 0:00:58.280 And now let's jump into the conversation with Stefan and 0:00:58.360 --> 0:01:01.120 Aaron and think about what might happen as we look 0:01:01.160 --> 0:01:10.280 forward to this winter and natural gas. Stefan, thank you 0:01:10.319 --> 0:01:15.080 for joining us, and Aaron Yea, thank you. Dana happy 0:01:15.120 --> 0:01:17.760 to be here. So we are here to talk about 0:01:18.480 --> 0:01:21.560 while the outlook for natural gas as we head into 0:01:21.600 --> 0:01:24.720 this winter in the Northern Hemisphere, and we do both 0:01:24.720 --> 0:01:28.360 a winter and a summer gas outlook every single year, 0:01:28.400 --> 0:01:30.560 and the both of you we do these globally, but 0:01:31.080 --> 0:01:34.880 you guys focus specifically on the European part of this outlook, 0:01:34.920 --> 0:01:37.080 and this is really where I think the I guess 0:01:37.120 --> 0:01:39.319 the crux of the attention is globally right now is 0:01:39.319 --> 0:01:42.480 on Europe specifically. So we will come to that and 0:01:42.560 --> 0:01:45.040 we will talk about those dynamics. But before we dive 0:01:45.080 --> 0:01:48.920 in there, could you please provide some perspective on why 0:01:48.960 --> 0:01:52.960 before the whole world was looking at gas prices, we 0:01:52.960 --> 0:02:00.120 were writing and researching winter and summer gas outlooks. Fundamentally, 0:02:00.200 --> 0:02:03.120 your gas year is split into two parts, your winter 0:02:03.320 --> 0:02:06.080 where you withdraw gas from storage, and your summer where 0:02:06.120 --> 0:02:09.280 you put gas into storage. Most gas consumption is in 0:02:09.520 --> 0:02:12.760 the Northern Hemisphere, so that works as a kind of 0:02:13.040 --> 0:02:17.200 like a global picture. So as a BNF Global Gas 0:02:17.240 --> 0:02:20.280 research team, what we do is at the start of 0:02:20.320 --> 0:02:23.280 each of those seasons in the winter, so that starts 0:02:23.280 --> 0:02:26.760 from October, so in September and the summer. So that's 0:02:26.840 --> 0:02:29.680 a forecast we produced in March for April looking for 0:02:29.720 --> 0:02:33.320 the year ahead for those two seasons. In many ways, 0:02:33.480 --> 0:02:36.399 these are like our regular monthly publications we put out, 0:02:36.440 --> 0:02:38.959 so we have our global Energy Outlook, we have the 0:02:39.040 --> 0:02:42.040 US Gas Monthly and the European Gas Monthly. But these 0:02:42.160 --> 0:02:45.480 are just where we really crunch some of the numbers 0:02:45.480 --> 0:02:47.560 and a bit more details, sit together as a team 0:02:47.600 --> 0:02:50.440 and decide what the story is for the global gas 0:02:50.440 --> 0:02:54.639 markets over the coming twelve months. So the disruption specifically 0:02:54.639 --> 0:02:58.320 in Europe really took off this summer, even though the 0:02:58.360 --> 0:03:01.000 crunch time is really approaching right now in the winter. 0:03:01.320 --> 0:03:03.720 So as we think about that, so Western Europe, what 0:03:03.800 --> 0:03:06.519 really happened was it lost almost all of its pipe 0:03:06.520 --> 0:03:09.440 supply from Russia. Can you really talk about why this 0:03:09.520 --> 0:03:13.720 is so important to the supply for Europe generally and 0:03:13.760 --> 0:03:16.280 what this does to the gas balance. So that pipe 0:03:16.320 --> 0:03:18.680 supply or Russian pipe supply and makes up around the 0:03:18.760 --> 0:03:22.280 third of your total European gas supply. So it's a 0:03:22.360 --> 0:03:25.639 market which have lost the very large chunk around thirty 0:03:25.639 --> 0:03:28.600 percent at the moment of its total supply, and for 0:03:28.639 --> 0:03:30.680 a lot of commodities markets, that would be quite a 0:03:30.680 --> 0:03:34.359 hard shock to balance. Fundamentally, this is a story which 0:03:34.400 --> 0:03:38.280 has been building over time. Russian gas supplies didn't really 0:03:38.840 --> 0:03:44.400 flow to the levels expected and have gradually decreased coming 0:03:44.400 --> 0:03:47.400 to the summer, where you've only got a dribble, so 0:03:47.880 --> 0:03:52.200 around ten of their historical levels remaining. So Russian gas 0:03:52.200 --> 0:03:54.280 was the third of the supply to Europe. But how 0:03:54.320 --> 0:03:57.520 about the rest of Russia's gas? Where else are they 0:03:57.600 --> 0:04:00.200 selling to and no longer supplying to Europe? Has that 0:04:00.240 --> 0:04:03.360 been problematic for them? Yeah, it's it's been problematic for them. 0:04:03.440 --> 0:04:06.280 So the thing is about pipeline gas. Those pipelines run 0:04:06.360 --> 0:04:09.480 to fixed locations and so you can't really send that 0:04:09.520 --> 0:04:12.920 gas to other locations unless you have a pipeline heading 0:04:13.000 --> 0:04:16.800 from the same source to a different location, which when 0:04:16.880 --> 0:04:18.599 it comes to a lot of Russian gas production that 0:04:18.720 --> 0:04:22.960 isn't currently So a lot of that gas which would 0:04:22.960 --> 0:04:25.400 be or historically has been sent to Europe is now 0:04:25.520 --> 0:04:28.760 is now lost to the global market, which is why 0:04:28.800 --> 0:04:31.520 this then also this has a very big impact on 0:04:31.560 --> 0:04:35.279 your global gas balance. When it comes to regards to 0:04:35.360 --> 0:04:39.839 Russian sales, high prices had largely offset their lowest sales 0:04:39.960 --> 0:04:43.720 volumes untill around the summer of this year, when you've 0:04:43.760 --> 0:04:49.440 actually increasingly seen Russian gas revenues for on a year 0:04:49.440 --> 0:04:52.080 on year basis, of course pipeline gas to Europe and 0:04:52.080 --> 0:04:54.880 the only gas Russia cells. It still has pipeline sales 0:04:54.920 --> 0:04:57.240 to China which are ramping up, but it also of 0:04:57.240 --> 0:05:00.920 course sells all energy Aaron, can you quantify those cells 0:05:00.960 --> 0:05:03.560 and really highlight where they've been flowing. Yeah, thank you, Stephan. 0:05:03.800 --> 0:05:08.000 In particular Russian llergy exports into Western Europe, so markets 0:05:08.000 --> 0:05:11.839 such as Spain, Netherlands, France, they have they have increasingly 0:05:11.920 --> 0:05:16.000 been importing higher volumes of llergy from Russia, even countries 0:05:16.040 --> 0:05:19.480 that typically didn't import Russian energies. So you're looking at 0:05:19.480 --> 0:05:22.600 countries such as Belgium, they are now increasing their appetite 0:05:22.600 --> 0:05:25.640 for Russian energy and this is primarily coming from the 0:05:25.720 --> 0:05:29.000 Yamal facility. So it's quite interesting, you know, when we 0:05:29.040 --> 0:05:32.640 talk about the complete, well not complete, almost complete collapse 0:05:32.640 --> 0:05:35.280 of Russian supply into Western Europe, we're still importing quite 0:05:35.279 --> 0:05:38.960 a significant amount of energy and just quickly explained why 0:05:39.160 --> 0:05:41.200 this supply was shut off. This was not due to 0:05:41.279 --> 0:05:43.960 sanctions imposed by Europe on Russia. This was a decision 0:05:44.000 --> 0:05:47.120 made by Russia proactively correct That depends on who you're 0:05:47.160 --> 0:05:49.680 talking to write. But we read a piece back in 0:05:49.760 --> 0:05:53.679 September one called unpacking putin statements right, which was really 0:05:53.680 --> 0:05:56.719 looking at some of the what we have to say, 0:05:56.800 --> 0:06:00.880 rather weak arguments Russia was using to justify why flows 0:06:00.880 --> 0:06:03.800 to Europe had not returned to previous highs and actually 0:06:03.839 --> 0:06:06.440 kept on falling. There is of course a debate about 0:06:06.440 --> 0:06:09.440 the nord Stream two pipeline and whether this reduction in 0:06:09.480 --> 0:06:12.159 flows could be viewed in retaliation to some of the 0:06:12.160 --> 0:06:15.360 political movements around that. And then, of course, though since 0:06:15.360 --> 0:06:17.960 the war in Ukraine, Russian flows have fallen further and 0:06:18.000 --> 0:06:21.560 further as the excuses have mounted. Only one turbine was 0:06:21.680 --> 0:06:25.760 left operational on the nord Stream pipeline, with I think 0:06:25.760 --> 0:06:28.160 a total of seven turbines at that facility or the 0:06:28.240 --> 0:06:33.280 upstream facility being found with technical issues. That's really surprising 0:06:33.279 --> 0:06:35.919 for a company with the performance record and the operational 0:06:35.960 --> 0:06:38.560 record of gas Prom. Gas Prom of course, then use 0:06:38.600 --> 0:06:41.880 sanctions as a shield, claiming that they could not repair 0:06:42.000 --> 0:06:46.240 these turbines given sanctions, So of course it depends on 0:06:46.279 --> 0:06:48.480 who you ask. But in a lot of our pieces, 0:06:48.480 --> 0:06:51.120 we've highlighted how weak some of the arguments have been 0:06:51.160 --> 0:06:53.760 the gas Prom and Russia have put forward. And the 0:06:53.800 --> 0:06:56.479 best example of that is how gas Prom still has 0:06:56.520 --> 0:07:00.320 available pipeline capacity through the Ukraine which it is not 0:07:00.480 --> 0:07:03.359 using currently and has not been using for quite a 0:07:03.360 --> 0:07:06.799 few months now, despite now sending less than its contractual 0:07:06.800 --> 0:07:10.080 obligations to a lot of its European customers. Let's then 0:07:10.280 --> 0:07:13.679 think about what this reductions apply to Europe has really 0:07:13.760 --> 0:07:17.400 done to gas prices, because we all acknowledge that, you know, 0:07:17.560 --> 0:07:20.320 gas is an important part of the energy system. It's 0:07:20.320 --> 0:07:23.560 an important part for heating for homes, it's an important 0:07:23.600 --> 0:07:28.400 part for manufacturing. It really touches so so many parts 0:07:28.400 --> 0:07:30.840 of the economy. And one of the primary reasons why 0:07:30.960 --> 0:07:33.040 people have said that it is linked to in many 0:07:33.120 --> 0:07:35.880 respects this high inflationary period that we're in right now. 0:07:36.320 --> 0:07:40.040 So what has been happening with Russian gas prices? Because 0:07:40.080 --> 0:07:42.360 I know that it is definitely more than gas traders 0:07:42.360 --> 0:07:44.840 that are keeping a close eye on gas prices at 0:07:44.840 --> 0:07:48.240 the moment. So the European gas market is largely liberalized, right, 0:07:48.360 --> 0:07:52.320 your price is set by that marginal supply source. And 0:07:52.680 --> 0:07:56.200 with the decline and Russian gas, Europe has to import 0:07:56.240 --> 0:07:59.920 a lot more energy, but specifically spot llergy, so liquid 0:08:00.200 --> 0:08:03.080 natural gas coming to us from ships instead of through 0:08:03.080 --> 0:08:06.880 these pipelines historically in Europe exactly. But also you know 0:08:06.960 --> 0:08:09.720 a lot of your buyers globally who import energy like that, 0:08:09.760 --> 0:08:12.560 they're signed up to these long term fixed price contracts 0:08:12.760 --> 0:08:15.600 which are set generally as a proportion of the oil price, 0:08:15.640 --> 0:08:18.800 and so a lot more stable. What Europe has to 0:08:18.840 --> 0:08:22.440 do is capture an exorbitantly large share of the global 0:08:22.520 --> 0:08:26.360 spot market, right. So that's in competition with Asian buyers. 0:08:26.680 --> 0:08:28.880 I think, Aaron, do you want to add in there 0:08:28.920 --> 0:08:31.920 about just what pushes and just how that competition is 0:08:32.000 --> 0:08:35.439 unfolding and pushing both European and global energy prices to 0:08:35.480 --> 0:08:38.280 these record high levels. So the situation you find itself 0:08:38.400 --> 0:08:40.520 is the fact that it now needs to replace, as 0:08:40.559 --> 0:08:44.599 Stefan mentioned, a large proportion of its baseline or baseload 0:08:44.960 --> 0:08:48.160 gas supply. In order to offset this, they have to 0:08:48.200 --> 0:08:51.000 attract energy and that is via the global spot market. 0:08:51.320 --> 0:08:55.080 As Stefan mentioned, a large proportion of energy volumes is 0:08:55.080 --> 0:08:57.920 tied under long term agreements. That's around seventy of the 0:08:57.960 --> 0:09:00.880 total llenergy supply. And how long is a long term 0:09:00.920 --> 0:09:04.520 agreement anywhere between fifteen and twenty five years, and they're 0:09:04.520 --> 0:09:07.959 having negotiations to bring in some shorter to medium term 0:09:08.000 --> 0:09:11.439 contracts ten to twelve years, but they haven't really gained 0:09:11.559 --> 0:09:14.360 much traction. And how much of the market is actually 0:09:14.400 --> 0:09:16.839 already tied up in these long term agreements. So you 0:09:16.920 --> 0:09:19.679 got four hundred in two million metric tons of available 0:09:19.800 --> 0:09:23.840 leergy supply se that is locked up in long term agreements. 0:09:23.920 --> 0:09:27.520 So Europe is now battling for that remaining thirty in 0:09:27.520 --> 0:09:32.040 which of its own supply is all on the spot market. 0:09:32.160 --> 0:09:36.280 So it's incredible competition, and it only takes a brief 0:09:36.320 --> 0:09:39.199 cold spell in markets such as China Japan, and then 0:09:39.240 --> 0:09:42.600 we could see a substantial amount of llergy being displaced 0:09:42.600 --> 0:09:44.440 to other markets and that will have a big impact 0:09:44.760 --> 0:09:48.360 on how Europe restocks through the winter. In terms of prices, 0:09:48.640 --> 0:09:50.840 what Europe has have to do is have to maintain 0:09:50.880 --> 0:09:54.720 a premium over Asian lergy prices that is the Japan 0:09:54.800 --> 0:09:58.960 Korean market, and then this constant competition to try and 0:09:59.040 --> 0:10:02.040 import spot ellen g has meant that the TTF has 0:10:02.080 --> 0:10:05.640 had to be priced that significant premium, and this kind 0:10:05.640 --> 0:10:08.079 of disrupts the forward curve as well, because all though 0:10:08.160 --> 0:10:12.160 prices have fallen from its significant highs due to mild 0:10:12.160 --> 0:10:15.560 weather and the fact that Europe has restopped sufficiently through 0:10:15.920 --> 0:10:19.480 the first month of the gas winter, there's always that 0:10:19.520 --> 0:10:22.000 need to import energy and that is going to keep 0:10:22.000 --> 0:10:24.720 prices high. We're in the first month of the gas winter. 0:10:25.000 --> 0:10:28.040 How closely are you guys watching the weather every morning? Yeah? 0:10:28.240 --> 0:10:30.719 Very It's a it's a daily ritual for us. So 0:10:31.080 --> 0:10:34.200 it's been incredibly mild in Europe and I think that's 0:10:34.240 --> 0:10:36.920 one factor which is why are October demand to date, 0:10:37.000 --> 0:10:41.640 So we're recording this on the October. So through October 0:10:42.080 --> 0:10:46.640 demand has come in around below your five year average, 0:10:47.320 --> 0:10:50.600 but only half of that is due to the weather, 0:10:50.679 --> 0:10:52.480 or approximately half. I think it could even be a 0:10:52.480 --> 0:10:55.640 bit less. Your weather is incredibly important when it comes 0:10:55.640 --> 0:10:59.040 to your winter gas demand. I think your rangeing outcomes 0:10:59.040 --> 0:11:02.160 over the last ten years is around ten billion cubic 0:11:02.440 --> 0:11:07.320 meters either side, which is, you know, around of your 0:11:07.320 --> 0:11:09.600 storage capacity. And this has to do with the fact 0:11:09.640 --> 0:11:12.800 that so much gas is used for residential heat or 0:11:12.840 --> 0:11:16.280 I guess buildings generally exactly, So thirty of your winter 0:11:16.280 --> 0:11:20.480 gas demand is residential household heating, at another ten for 0:11:20.520 --> 0:11:24.600 commercial buildings. Right of your winter load is gas is 0:11:24.679 --> 0:11:27.160 just for heating. And this is what makes it your 0:11:27.200 --> 0:11:30.440 gas demand so seasonal. Your gas demand in peak winter 0:11:31.040 --> 0:11:34.079 is about four times higher than your gas demand in 0:11:34.160 --> 0:11:36.199 your low points of your summer, because when you get 0:11:36.240 --> 0:11:39.720 into December January, right, you have that really big proportion 0:11:39.760 --> 0:11:44.199 of heating demand. So yeah, whether it really impacts how 0:11:44.240 --> 0:11:47.000 the balance evolves and how demanded supply shape up. So 0:11:47.080 --> 0:11:50.600 in two scenarios, either a mild winter or a particularly 0:11:50.640 --> 0:11:55.080 cold winter, is there enough in the gas stores in 0:11:55.120 --> 0:11:57.760 Europe to make it through this winter? Yeah, I think 0:11:57.920 --> 0:12:01.240 we argue that that's definitely the case. Our latest forecast 0:12:01.320 --> 0:12:04.560 for European storage inventory evolution over the course of this 0:12:04.600 --> 0:12:08.600 winter suggests that European storage is in the smaller smaller 0:12:08.600 --> 0:12:11.560 region of Europe we cover will be around full. So 0:12:11.600 --> 0:12:14.880 that's around thirty billion cubic meters, and that is enough 0:12:14.960 --> 0:12:18.400 to absorb even the coldest of the last thirty winters 0:12:18.960 --> 0:12:21.600 or the remainder of the winter because we're not forecasting 0:12:21.600 --> 0:12:26.600 from November on pretty comfortably. So whether variation is important, 0:12:26.679 --> 0:12:29.360 but I think for us what's increasingly important is also 0:12:29.440 --> 0:12:33.040 your demand destruction variation, which the market is still incredibly 0:12:33.080 --> 0:12:36.319 uncertain about. So let's talk about demand destruction. The European 0:12:36.400 --> 0:12:39.760 Union is set a target for reducing gas demand. What 0:12:39.920 --> 0:12:41.720 is that and where did that come from? So, as 0:12:41.760 --> 0:12:46.120 Aaron highlighted, there is not enough l energy to entirely 0:12:46.280 --> 0:12:50.280 replace Russian gas. You know, even if we attract really 0:12:50.360 --> 0:12:53.560 high proportion of this global spot share, you know, we 0:12:53.600 --> 0:12:57.839 can only replace around six really of the Russian gas 0:12:57.960 --> 0:13:01.520 volumes we usually got. Means that the market still has 0:13:01.520 --> 0:13:04.439 a lot of work to do to balance upside from 0:13:04.440 --> 0:13:07.640 other supply sources, especially now when you're increasingly thinking on 0:13:07.679 --> 0:13:11.160 a year on your basis is really limited, right, So 0:13:11.360 --> 0:13:13.920 the demand side of the balance has to shift in 0:13:14.040 --> 0:13:17.680 order for us to have enough gas in storage. So yeah, 0:13:17.720 --> 0:13:19.480 that's why this policy was put in place. It was 0:13:19.520 --> 0:13:23.240 from that realization of the fact that without changing our 0:13:23.280 --> 0:13:26.720 gas consumption, we still forecast that we would run out 0:13:26.760 --> 0:13:29.480 of gas and storage and an average winter by the 0:13:29.559 --> 0:13:32.240 end of March. So can you elaborate a little bit 0:13:32.320 --> 0:13:36.240 on what demand destruction looks like and is this come 0:13:36.240 --> 0:13:37.800 in the form of rationing, does it come in the 0:13:37.840 --> 0:13:41.120 form of you know, conservation. I'm even thinking a little 0:13:41.120 --> 0:13:43.600 bit about actually this summer and how there are many 0:13:43.640 --> 0:13:46.079 parts of the world that actually suffered from severe droughts 0:13:46.120 --> 0:13:48.360 and there was a lot of discussion around water rationing. 0:13:49.040 --> 0:13:51.760 Maybe this is the same conversation around electricity use and 0:13:51.840 --> 0:13:55.520 home heat. Yeah, it's exactly that, right. So the worst 0:13:55.559 --> 0:13:58.280 case scenario, which is a scenario which our forecast really 0:13:58.320 --> 0:14:01.600 think will avoid, is rang where government steps in and 0:14:01.640 --> 0:14:06.680 forcibly allocates a resource. Right, But exactly as you point out, 0:14:06.720 --> 0:14:09.200 before you get to that stage, in many cases you 0:14:09.240 --> 0:14:12.680 have campaigns to reduce consumption. You know, your classic UK 0:14:12.800 --> 0:14:16.280 summer host pipe band being the best example of that. 0:14:16.840 --> 0:14:19.720 So talking about this target of fifteen percent, which the 0:14:19.800 --> 0:14:23.840 EU set, that's cross sectoral right, So it's fift of 0:14:23.880 --> 0:14:27.280 our total gas consumption. When we think about the fact, 0:14:27.440 --> 0:14:31.160 as highlighted that in the winter, almost of your gas 0:14:31.160 --> 0:14:34.800 demand is used in buildings or so called local distribution 0:14:34.920 --> 0:14:39.280 zone that's smaller gas pipe networks which we commercial residential buildings, 0:14:39.720 --> 0:14:42.160 it becomes pretty apparent that we have to cut demand 0:14:42.520 --> 0:14:45.280 in that sector in order to meet these targets, right, 0:14:45.640 --> 0:14:49.960 we can't just let industry and power demand do all 0:14:50.000 --> 0:14:53.400 of the work there. So, you know, governments are balancing 0:14:53.840 --> 0:14:58.320 this really hard political question of protecting consumers from high 0:14:58.400 --> 0:15:01.000 prices and not wanting to part us on higher energy 0:15:01.000 --> 0:15:06.360 prices to consumers, while still needing to encourage demand reduction 0:15:06.480 --> 0:15:08.800 and us all to be a bit more sensible with 0:15:08.880 --> 0:15:11.000 how we heat our homes and the energy we consume. 0:15:11.280 --> 0:15:13.720 I think that's a very important point. That's definite makes 0:15:13.760 --> 0:15:16.920 that governments must strike this fine balance because as soon 0:15:16.960 --> 0:15:19.040 as you start to intervene with stuff such as a 0:15:19.080 --> 0:15:23.320 price cap, you start to disrupt market dynamics in terms 0:15:23.360 --> 0:15:25.800 of letting the price do the work. So up to 0:15:25.840 --> 0:15:29.000 this point, high prices have allowed sufficient demand structure to 0:15:29.040 --> 0:15:30.960 take place. But as soon as a gas price cap, 0:15:31.040 --> 0:15:33.360 as soon as that's implemented, you can start to see 0:15:33.800 --> 0:15:36.760 some of these things. Let's say, this demand structure not 0:15:37.200 --> 0:15:40.600 playing out as we have seen. So, for example, if 0:15:40.600 --> 0:15:43.760 we start to cap the price of gas and you know, 0:15:43.840 --> 0:15:46.720 demand picks up elsewhere, do we lose that energy supplied 0:15:46.760 --> 0:15:49.000 that we were able to import because of the price 0:15:49.040 --> 0:15:53.120 of wholesale gas. Another point being the fact that if 0:15:53.160 --> 0:15:55.440 you cap the price of gas, such as what happened 0:15:55.440 --> 0:15:58.040 in Spain, you could actually increase demand in the power 0:15:58.040 --> 0:16:01.200 sector because you could start to see incremental cult to 0:16:01.240 --> 0:16:04.360 gas switching once again. And when you start to play 0:16:04.400 --> 0:16:07.240 around with price mechanics, then you're not really letting the 0:16:07.240 --> 0:16:09.440 market do the work, and the market should balance based 0:16:09.480 --> 0:16:11.920 off price. So I think it is a very fine 0:16:11.920 --> 0:16:15.200 balance on how much the government does intervene. Now for 0:16:15.240 --> 0:16:21.520 a very short break, stay with us. Well, there's the 0:16:21.560 --> 0:16:25.040 industry end of things, and then there is the individuals 0:16:25.200 --> 0:16:28.960 who in some respects you're seeing you know, residential individual 0:16:29.080 --> 0:16:32.120 homes paying multiples of what they are paying last year, 0:16:32.160 --> 0:16:35.240 and not everyone can afford. That is their discussion around 0:16:35.520 --> 0:16:39.720 keeping industry and individuals separate. In terms of how this 0:16:39.840 --> 0:16:42.600 is implemented, I think it's worth coming back to, like 0:16:42.680 --> 0:16:46.480 how pricing works for residential consumers and also for large 0:16:46.480 --> 0:16:50.320 parts of your industrial consumer base, to understand that link 0:16:50.360 --> 0:16:53.440 with the wholesale market, because I think that's also critical 0:16:53.480 --> 0:16:56.840 to understand why we went so high, but also why 0:16:56.960 --> 0:17:01.080 we're coming off now in terms of your prices gas 0:17:01.200 --> 0:17:05.160 demand for wholesale consumers is often set through a variety 0:17:05.160 --> 0:17:09.680 of tariff structures which are not directly related to your 0:17:09.680 --> 0:17:12.280 wholesale price of gas right there, based on like an 0:17:12.280 --> 0:17:15.920 average price your wholesale importer has had to pay over 0:17:16.000 --> 0:17:20.439 twelve months, say, you know, there's often extra fees or subsidies, 0:17:20.800 --> 0:17:23.600 which means that the price a wholesale consumer pays is 0:17:24.160 --> 0:17:28.920 generally quite lag compared to your wholesale price movements. When 0:17:28.960 --> 0:17:33.800 we come to that really explains why it's really hard 0:17:33.840 --> 0:17:37.280 for the market to calibrate at the moment. Because we've 0:17:37.280 --> 0:17:39.880 said that the market needs demand destruction, but a lot 0:17:39.920 --> 0:17:42.800 of the sectors where you had to reduce that demand 0:17:43.080 --> 0:17:47.040 only saw an increase in prices well after your wholesale 0:17:47.040 --> 0:17:50.439 prices had already gone up by multiples of ten in 0:17:50.480 --> 0:17:53.719 a year, right from the summer of the summer of one. 0:17:54.000 --> 0:17:57.600 Now we're in a situation where your average wholesale price 0:17:57.680 --> 0:18:02.520 over the last year is probably like twenty times roughly, 0:18:02.600 --> 0:18:05.679 let's say over the summer. And of course, then, as 0:18:05.720 --> 0:18:08.919 you rightly point out, no residential consumer or customer or 0:18:08.960 --> 0:18:12.920 small business can really deal with that. So coming back 0:18:12.960 --> 0:18:16.280 to what governments now face, right you're facing between balancing 0:18:16.320 --> 0:18:19.240 this book of where some of your importers and the 0:18:19.280 --> 0:18:23.479 people who supply downstream gas have to pay wholesale prices 0:18:23.520 --> 0:18:26.560 which are up by multiples, you know, in the tens, twenties, 0:18:26.840 --> 0:18:30.359 thirties even higher, and residential gas consumers of course cannot 0:18:30.359 --> 0:18:33.159 pay that multiple. So yeah, there was a bound to 0:18:33.160 --> 0:18:36.520 be struck here, and many governments have put in price caps. 0:18:36.560 --> 0:18:39.439 You know, across the perimeter of countries we cover in 0:18:39.480 --> 0:18:43.920 northwest Europe, including the UK, your average residential price is 0:18:43.960 --> 0:18:48.200 going to increase somewhere from sevent to two pad to 0:18:49.080 --> 0:18:52.199 levels over the course of this winter, so still a 0:18:52.280 --> 0:18:56.080 very substantial price increase. But for some consumers that's that's 0:18:56.119 --> 0:18:58.399 not the case, right. You know, we have a lot 0:18:58.400 --> 0:19:00.280 of chat in the London office that for some of 0:19:00.400 --> 0:19:03.000 us here, because we might live in a well insulated 0:19:03.200 --> 0:19:05.560 new building block, our energy prices are actually going to 0:19:05.600 --> 0:19:08.480 be going down this winter, which is really comes back 0:19:08.520 --> 0:19:11.800 to how difficult some of these policy decisions are and 0:19:11.840 --> 0:19:15.800 how they need to really keep a very close eye 0:19:15.960 --> 0:19:18.639 and on that link between what's happening on your residential 0:19:18.680 --> 0:19:22.320 consumer side and how that affects your wholesale price evolution. 0:19:23.040 --> 0:19:26.000 So there's getting through this winter, which is definitely front 0:19:26.000 --> 0:19:29.720 of mind, but fundamentally, unless something changes, we're going to 0:19:29.760 --> 0:19:32.399 be in the same situation next winter as well. So 0:19:32.440 --> 0:19:35.040 then this brings me to this question around as we 0:19:35.119 --> 0:19:37.320 look forward, and as we look at a lot of 0:19:37.760 --> 0:19:41.520 net zero targets that many companies and countries have out to. 0:19:42.600 --> 0:19:44.800 There was a lot of discussion about actually phasing out 0:19:44.920 --> 0:19:49.320 natural gas at some point and building enough of various 0:19:49.320 --> 0:19:53.720 other forms of capacity in order to at least dramatically 0:19:53.760 --> 0:19:57.480 reduce the dependence upon this flexible capacity which in many 0:19:57.520 --> 0:20:01.480 respects has been supporting wind and soul. Where do you 0:20:01.520 --> 0:20:07.040 see the conversation right now moving towards installing more renewables 0:20:07.040 --> 0:20:10.520 in order to create domestic supply or the other thing 0:20:10.560 --> 0:20:12.960 that we're also seeing, which is in your already referenced this, 0:20:13.080 --> 0:20:16.560 you know, switching between coal and gas and this almost 0:20:16.680 --> 0:20:19.800 coal renaissance, and also this discussion now that's re emerging 0:20:19.800 --> 0:20:25.040 around nuclear and things that provide baseload energy. I think 0:20:25.320 --> 0:20:28.040 it helps me to think about this by splitting those 0:20:28.080 --> 0:20:32.399 things into three different baskets. I think, given how quickly 0:20:32.480 --> 0:20:34.960 Russian flows have declined in the short term, we really 0:20:35.000 --> 0:20:39.240 need some of this emergency demand destruction for the medium terms. 0:20:39.280 --> 0:20:41.560 So for me, that kind of means out to now, 0:20:42.160 --> 0:20:45.320 I think to see how Europe's approaching and thinking about this, 0:20:46.080 --> 0:20:49.480 or at least hoping to do this. The document that 0:20:49.800 --> 0:20:51.760 and the policy that needs to be looked at is 0:20:51.880 --> 0:20:55.000 the European Commissions Repower You Plan. So this was a 0:20:55.040 --> 0:20:59.240 plan released in March two in response to the Russian invasion, 0:20:59.640 --> 0:21:03.600 and it was supposed to change European energy consumption so 0:21:03.680 --> 0:21:06.280 that we would be rid of our alliance on Russian 0:21:06.359 --> 0:21:12.480 natural gas. When I like talk about this plan, I 0:21:12.640 --> 0:21:16.159 used the phrase really like turbo charging. The energy transition. 0:21:16.680 --> 0:21:20.560 The bulk of demand reduction and the bulk of what 0:21:20.720 --> 0:21:27.360 offsets this lost Russian supply is electrification, insulation, switching to hydrogen. 0:21:27.400 --> 0:21:31.080 It's it's around seventy of the targeted demand reduction, right, 0:21:31.119 --> 0:21:34.639 so a thirty percent reduction in our European gas consumption. 0:21:35.040 --> 0:21:39.920 By However, it's important to highlight that that plan also 0:21:41.119 --> 0:21:44.480 included two things which I grouped into a bucket which 0:21:44.520 --> 0:21:48.160 I called of kind of have referred to previously as compromises, 0:21:48.800 --> 0:21:53.199 which includes measures such as potentially extending the life of 0:21:53.240 --> 0:21:56.680 some cold plants reevaluating some of the decisions we've made 0:21:56.720 --> 0:21:59.439 on nuclear as you point out, data which will be 0:21:59.520 --> 0:22:03.840 needed realistically by and the fundamental reason for that is 0:22:04.400 --> 0:22:08.120 that some of these decorganization measures such as hydrogen development 0:22:08.119 --> 0:22:12.439 you know, won't take place before and substantial quantities. And 0:22:12.480 --> 0:22:15.480 then the third bucket, which becomes even more critical and 0:22:15.560 --> 0:22:19.679 absolutely necessary given how quickly Russian flows have fallen, is 0:22:20.119 --> 0:22:24.960 outright demand destruction and reduction of consumption. Right. So the 0:22:25.000 --> 0:22:28.720 European Commission admitted that high prices and outlook for sustained 0:22:28.760 --> 0:22:31.840 high prices would have caused some demand reduction, but it 0:22:31.880 --> 0:22:35.200 was only really in the region of around billion cubic 0:22:35.280 --> 0:22:38.280 meters if I remember correctly. You know, I think this 0:22:38.400 --> 0:22:41.800 year we're looking at our forecast of being around sixty 0:22:41.840 --> 0:22:45.919 billion cubic meters. Yeah, for for repower you and the 0:22:45.920 --> 0:22:48.439