WEBVTT - Europe Energy Crunch, Explained 0:00:00.160 --> 0:00:02.520 Hey, everyone, you might be will hear in my voice, 0:00:02.560 --> 0:00:03.880 but I've got a bit of a cold right now. 0:00:03.920 --> 0:00:05.600 I guess that was bound to happen when we all 0:00:05.600 --> 0:00:07.520 went back out into the world. I guess. I don't know. 0:00:07.840 --> 0:00:11.200 I hope everybody's feeling fine and doesn't have a cold anyway. 0:00:11.640 --> 0:00:13.280 So I got a text the other day from a 0:00:13.320 --> 0:00:16.119 friend that just said, quote, tell me what's what and 0:00:16.120 --> 0:00:17.880 had a link to an op ed about the current 0:00:17.960 --> 0:00:21.159 energy crisis here in Europe. Yes, there are cues at 0:00:21.200 --> 0:00:24.239 the pump, Yes there are higher gas prices, and yes 0:00:24.480 --> 0:00:27.479 gas storage levels are low compared to years prior. But 0:00:27.640 --> 0:00:30.240 is it a crisis? And the op ed claims it's 0:00:30.280 --> 0:00:33.160 all caused by renewables? Is that true? So I texted 0:00:33.200 --> 0:00:34.960 him back and I said, well, I actually didn't know 0:00:35.040 --> 0:00:37.640 the full answer, but as luck would have it, I'm 0:00:37.640 --> 0:00:40.000 recording a pot on the topic and we'll find out then. 0:00:40.520 --> 0:00:42.599 So to help us figure out what's what, we've got 0:00:42.680 --> 0:00:45.360 David Hoster, being his head of research for AMIA the 0:00:45.360 --> 0:00:47.600 Europe Middle Eastern Africa region. He'll walk us through the 0:00:47.600 --> 0:00:50.640 big picture why the energy crunch, why now? And walk 0:00:50.680 --> 0:00:54.840 us through all the contributing factors. Gas coal, carbon and renewables. 0:00:54.840 --> 0:00:57.480 This interview is based on an ongoing coverage of European gas, 0:00:57.480 --> 0:00:59.960 power and carbon markets being a Fuss. You can find 0:01:00.000 --> 0:01:02.640 this analysis on BFC and the Bloomberg Terminal, BNF dot 0:01:02.680 --> 0:01:05.680 com and BENF Mobile. As a reminder, BENIF does not 0:01:05.800 --> 0:01:07.760 provide investment of strategy advice and you can do the 0:01:07.760 --> 0:01:10.200 full disclaimer at the end of the show. I'm Mark 0:01:10.200 --> 0:01:20.880 Taylor and you're listening to switch on to BENF podcast. David. Welcome, Hi, Mark, 0:01:20.920 --> 0:01:23.160 it's good to be here. Thanks for joining. Okay, so, 0:01:23.240 --> 0:01:25.440 just reading the news here in the UK, you know 0:01:25.440 --> 0:01:27.720 there's all this news about long queues at the petrol 0:01:27.760 --> 0:01:31.680 stations or the British Army today was announced that they 0:01:31.680 --> 0:01:34.160 were coming to to deliver the patrol to the stations. 0:01:34.600 --> 0:01:37.360 You hear about electricity distributors going out of business. I'm 0:01:37.360 --> 0:01:40.840 hearing about high natural gas prices. But honestly I don't 0:01:40.840 --> 0:01:42.640 really know what's going on. And I get text messages 0:01:42.640 --> 0:01:44.760 from friends saying like, hey, you're an energy can you 0:01:44.760 --> 0:01:47.119 explain what's going on? And I say no, I can't 0:01:47.600 --> 0:01:50.120 actually told one. I'm doing a podcast today where we'll 0:01:50.120 --> 0:01:52.360 get an explanation and just to listen to the show. 0:01:52.880 --> 0:01:56.800 So can you help me and my friends understand what's 0:01:56.840 --> 0:01:59.560 going on a bit better? Yeah, it's funny how these 0:01:59.600 --> 0:02:02.160 kind of quote unquote boring topics that you and I 0:02:02.240 --> 0:02:04.760 care so much about have suddenly made headline news in 0:02:04.800 --> 0:02:07.600 the right So so suddenly where in this energy crunch 0:02:07.760 --> 0:02:11.200 and all these inner working tubes and flows that are 0:02:11.200 --> 0:02:13.400 really boring where it come to the front, right, So 0:02:13.480 --> 0:02:15.040 you used to go into the petrol station, of course 0:02:15.040 --> 0:02:17.640 there's petrol, and used to kind of turning on the lights, 0:02:17.680 --> 0:02:22.560 and of course there's lights, and suddenly suppliers switching high prices, 0:02:22.680 --> 0:02:24.720 high gas make you question all of that And the 0:02:24.720 --> 0:02:27.320 answer is that probably probably it's not that bad. And 0:02:27.400 --> 0:02:30.360 there's the stage in trading is like the cure for 0:02:30.440 --> 0:02:33.640 high prices as high prices, so you know, if prices 0:02:33.639 --> 0:02:37.400 are high, that will kick off the necessary investments and 0:02:37.560 --> 0:02:40.000 trades and flows too to bring them down again. But 0:02:40.080 --> 0:02:42.399 it just feels a little bit like we're and and 0:02:42.400 --> 0:02:44.320 that doesn't just feel we are in in in a 0:02:44.320 --> 0:02:47.040 crunch at the moment where a lot of factors come together. 0:02:47.400 --> 0:02:50.440 And I think what what is surprising too many people 0:02:50.560 --> 0:02:55.239 is how connected today's markets are if you think about gas, 0:02:55.280 --> 0:02:57.760 if you think about power, these are you know, kind 0:02:57.760 --> 0:03:01.440 of commodities that are often generated and sourced locally. But 0:03:01.919 --> 0:03:04.880 in the case of gas, we are now suddenly in 0:03:04.960 --> 0:03:08.520 this global market where something that happens in Korea, something 0:03:08.560 --> 0:03:12.000 that happens in Japan affects us directly. And that's new, right, 0:03:12.040 --> 0:03:15.720 where gas prices are really really high, and then power 0:03:15.760 --> 0:03:18.440 prices are high as a result of thought, and then 0:03:18.480 --> 0:03:22.120 we have these other kind of crisis or perceived crisis 0:03:22.200 --> 0:03:24.760 in other commodities as well. So I think it's really 0:03:24.800 --> 0:03:28.959 come to the forefront. There is an element of hype 0:03:28.960 --> 0:03:31.440 as well. People go crazy, and then you know, the 0:03:31.440 --> 0:03:34.000 papers write about people going crazy, and that makes people 0:03:34.120 --> 0:03:38.640 go more crazy. But there is a real interesting story here, 0:03:38.720 --> 0:03:41.240 and it touches on all the major commodities, and it 0:03:41.480 --> 0:03:44.520 touches on all the major markets, and it's frankly like 0:03:44.560 --> 0:03:47.760 a very interesting time to be in energy and then 0:03:48.040 --> 0:03:52.160 especially as we're looking transition to a net zero world, 0:03:52.480 --> 0:03:55.840 but not necessarily an interesting time to pay my electricity 0:03:55.840 --> 0:03:59.040 bill or go to the petrol station. Okay, so what 0:03:59.120 --> 0:04:01.600 we want to do in this episode, everybody is just 0:04:01.720 --> 0:04:04.600 kind of lay this out so we understand, you know, 0:04:04.720 --> 0:04:07.120 tick tick tick, what's going on with each of these 0:04:07.160 --> 0:04:10.800 types of commodities and markets. To help understand what's going on. 0:04:10.840 --> 0:04:13.080 But let's just put this to bed, Like, is this 0:04:13.160 --> 0:04:16.920 a crisis, a crunch somewhere in between? Is it real? 0:04:17.080 --> 0:04:19.719 You mentioned hype a second ago, Like, what's the real deal? 0:04:19.960 --> 0:04:22.960 It is a crunch, and it is real because high 0:04:23.000 --> 0:04:26.240 prices are hitting consumers, high prices are hitting suppliers, high 0:04:26.320 --> 0:04:29.960 prices are hitting companies. So you know, you and I 0:04:30.000 --> 0:04:33.080 were in the UK, we have this observed situation a 0:04:33.080 --> 0:04:37.520 few weeks back where a fertilizer planned was coming offline 0:04:37.560 --> 0:04:39.479 because the gas prices are very high. So why should 0:04:39.520 --> 0:04:41.960 we care about this? Well, we do care because as 0:04:41.960 --> 0:04:44.719 a side product of the fertilizing process as c O 0:04:44.800 --> 0:04:47.120 two and c O two is one of the inputs 0:04:47.120 --> 0:04:50.039 for dry eyes, that's one of the inputs for meat 0:04:50.080 --> 0:04:53.520 and poultry industry. And suddenly we're in the situation where 0:04:53.880 --> 0:04:57.480 you know, we can't get deliveries from our supermarkets because 0:04:57.480 --> 0:04:59.760 they don't have frozen goods because they don't have dry eyes. 0:05:00.120 --> 0:05:03.359 And suddenly becomes very real. Right, there is a a 0:05:03.520 --> 0:05:06.960 real element in terms of like where we're going long 0:05:07.080 --> 0:05:09.480 term with this, and we said this had been here 0:05:09.520 --> 0:05:12.360 for a long time. Long term prices will go down 0:05:12.360 --> 0:05:15.400 in the power sector, and that's because renewables coming in. 0:05:15.800 --> 0:05:19.040 The renewables are you know, near zero marginal cost, So 0:05:19.080 --> 0:05:21.640 we expect prices to go in the long term. And 0:05:21.640 --> 0:05:24.400 and too many people it's been almost a surprise that 0:05:24.480 --> 0:05:26.880 in the meantime prices can go up again. There isn't 0:05:26.920 --> 0:05:30.480 just this one way street where prices go down. There 0:05:30.520 --> 0:05:33.160 is an element of hype, asn't any trade, but there 0:05:33.240 --> 0:05:36.200 is also kind of real shortage and part of this 0:05:36.400 --> 0:05:39.760 supply and demand, and part of it goes back to COVID, right, 0:05:39.880 --> 0:05:42.200 like all these disruptions in the supply chain that we 0:05:42.320 --> 0:05:45.760 had the last year are coming back to bite us. 0:05:46.520 --> 0:05:49.200 A ripple effect, Yeah, there's there's a ripple effect. There's 0:05:49.240 --> 0:05:52.880 this experiment that I really like about phantom traffic jam. 0:05:52.920 --> 0:05:54.839 I don't know if you know this experiment. It's basically 0:05:55.160 --> 0:05:58.200 a bunch of cars going around in a circle and 0:05:58.360 --> 0:06:00.200 there's no obstacle, but they're just going around in the 0:06:00.279 --> 0:06:03.640 circle and then after a while you get these ripple effect. Well, 0:06:03.680 --> 0:06:06.039 one driver goes a little bit slower, and the next 0:06:06.040 --> 0:06:07.960 one goes a bit slower, and suddenly you have a 0:06:07.960 --> 0:06:10.200 traffic jam and what is a perfect circle, Like there 0:06:10.200 --> 0:06:13.040 shouldn't be any obstacle, but there's still this traffic jum 0:06:13.120 --> 0:06:16.360 And I think it's a really nice image for the 0:06:16.480 --> 0:06:19.720 global supply chains and how they're connected. And in this case, 0:06:19.720 --> 0:06:22.800 there was a real obstacle, which was COVID, and we're 0:06:22.839 --> 0:06:26.839 still seeing these these ripple effects were odd pieces of 0:06:26.920 --> 0:06:31.120 the supply chain don't work. That's fascinating. I'm sure everybody 0:06:31.120 --> 0:06:33.720 in in Washington, d C. Was thinking just now Root 0:06:33.800 --> 0:06:36.880 sixty six when you said that that infamous traffic on 0:06:36.960 --> 0:06:39.440 that road happened just because of that. When somebody taps 0:06:39.480 --> 0:06:42.080 the brakes, you know, everything else stops. I didn't even 0:06:42.080 --> 0:06:45.920 think about the you know, the fertilizer plant not be 0:06:45.960 --> 0:06:49.039 able to pay their their gas bill shutting down, that 0:06:49.160 --> 0:06:52.960 leading to disruptions in the in the cold chain, in supermarkets. 0:06:53.040 --> 0:06:56.479 I mean, come on, it's all it's all interconnected. It's fascinating. 0:06:56.960 --> 0:07:00.400 Can we start with gas actually just going to tick 0:07:00.440 --> 0:07:02.360 through these things of what's going on with each of 0:07:02.400 --> 0:07:04.800 these these commodity markets. Yeah, let's do that, all right? 0:07:04.880 --> 0:07:06.440 So just give it to a straight What's what's going 0:07:06.440 --> 0:07:10.040 on with gas? So the gas market in many sents, 0:07:10.320 --> 0:07:12.680 it is one of the biggest drivers for this crisis, 0:07:13.200 --> 0:07:16.440 and it's really to do in Europe with concerns around 0:07:16.600 --> 0:07:19.560 Europe's ability to refill gas storage before the winter. Right, 0:07:19.920 --> 0:07:23.680 So Europe has gas storage, and during the summer, when 0:07:23.800 --> 0:07:27.000 demand in Europe is low because we're not heating there 0:07:27.080 --> 0:07:30.680 isn't so much demand from domestic users, we fill up 0:07:30.720 --> 0:07:33.280 the storage before the winter, and then over the winter 0:07:33.400 --> 0:07:36.880 we deplete that and we still import. So the storage 0:07:36.960 --> 0:07:40.200 level is a really important indicator of where we are 0:07:40.200 --> 0:07:42.120 going in terms of the winter, whether the market would 0:07:42.120 --> 0:07:44.760 be tight meaning there's kind of not enough supply for 0:07:44.800 --> 0:07:48.480 the demand, or whether we lose where there's oversupply, and 0:07:48.520 --> 0:07:52.160 that's you know, prices are all around tightness. Source stores 0:07:52.200 --> 0:07:54.680 filled up right now. So part of the driver of 0:07:54.760 --> 0:07:58.640 these high prices is concerns around storage. Right. We import 0:07:58.800 --> 0:08:01.200 gas over the summer stored and then we use it 0:08:01.240 --> 0:08:03.679 over the winter and we keep importing all the while. 0:08:04.240 --> 0:08:08.480 And this year storage levels are really low historically, so 0:08:08.560 --> 0:08:13.120 we're only at compared to where we would be on 0:08:13.200 --> 0:08:15.960 a five year average, and that's creates tightness in the 0:08:16.000 --> 0:08:18.920 market and really some concerns around the winterhead because if 0:08:18.920 --> 0:08:21.320 we have a cold winter mark we could be ending 0:08:21.360 --> 0:08:24.560 up with zero or next to no storage left at 0:08:24.560 --> 0:08:27.920 the end, and that then creates a ripple effect kind 0:08:27.920 --> 0:08:30.800 of coming back to this traffic journal we talked about earlier. 0:08:30.920 --> 0:08:33.280 That could then last into the summer when we're competing 0:08:33.280 --> 0:08:36.600 with Japan and Korea, and then into next winter. So 0:08:36.960 --> 0:08:40.800 what happens now could like you know, trickle down, ripple 0:08:40.840 --> 0:08:44.480 through the system and lead to a tight situation next 0:08:44.480 --> 0:08:46.800 winter as well. In the UK, we always like to 0:08:46.960 --> 0:08:48.800 kind of see some sunshine. Would we really get to 0:08:48.840 --> 0:08:51.800 see some sunshine this winter because if we if we 0:08:51.840 --> 0:08:54.160 if we end up with a colder than you know, 0:08:54.280 --> 0:08:57.559 just really the colder, much colder than average winter, then um, 0:08:57.559 --> 0:09:00.120 that could be could your problem? There's a I was 0:09:00.160 --> 0:09:02.720 just sitting here at my desk freezing, wearing a jacket. 0:09:03.120 --> 0:09:06.760 My kids come up from school and like, Dad, can 0:09:06.760 --> 0:09:08.720 we can we turn on the heat And I'm like, 0:09:09.080 --> 0:09:11.640 come on, it's still September. I kid, turn on the heat. 0:09:12.000 --> 0:09:14.400 They please, We're freezing And I was like, Hi, fine, 0:09:14.800 --> 0:09:17.720 so September here we are September and I'm turning on 0:09:17.760 --> 0:09:19.959 the heat. Yeah, and you were coming off a cold winter, 0:09:20.400 --> 0:09:22.320 if you if you cast your mind back to a 0:09:22.320 --> 0:09:24.319 couple of months earlier, we had a really cold winter 0:09:24.440 --> 0:09:26.360 this year, you know, there was kind of we were 0:09:26.400 --> 0:09:30.000 heating well into March May. So that's the issue, right 0:09:30.000 --> 0:09:33.400 where low one supply and low on storage, and then 0:09:33.520 --> 0:09:36.760 supply just hasn't come in the way it usually does. 0:09:37.120 --> 0:09:40.040 So imports from Russia, which are a big factor and 0:09:40.120 --> 0:09:43.120 this have been low. And there's a bunch of reasons 0:09:43.200 --> 0:09:47.120 for that. And then llen G, which is liquid natural gas, 0:09:47.640 --> 0:09:50.720 which has been increasingly playing a role in European supplies, 0:09:51.160 --> 0:09:54.240 has also gone down. And that's due to global competition, 0:09:54.400 --> 0:09:57.800 and it's due to kind of long term contracts from 0:09:58.040 --> 0:10:02.080 Japan and Korea in particular, where they import gas, and 0:10:02.200 --> 0:10:05.000 they just called on these contracts to be fulfilled and 0:10:05.280 --> 0:10:07.960 there just wasn't enough to go around to fill up 0:10:08.040 --> 0:10:10.520 European supplies. And I think I read the other day 0:10:10.520 --> 0:10:13.600 that China has a what does it fill at all 0:10:13.679 --> 0:10:16.440 costs contract for LERG, you know, so that they'll pay 0:10:16.480 --> 0:10:20.079 just basically whatever to make sure they have their supplies. Yeah, right, 0:10:20.120 --> 0:10:22.200 that sounds a really strong signal. And on top of that, 0:10:22.280 --> 0:10:24.600 they also announced this week that they're going to restrict 0:10:24.640 --> 0:10:27.360 some of the health and safety protocol in coal mines, 0:10:27.679 --> 0:10:30.040 so if there's an accident in a coal mine, they'll 0:10:30.080 --> 0:10:33.080 just run production back up quicker. And that's a really 0:10:33.120 --> 0:10:36.520 strong signal. And if one of your biggest buyers says, hey, guys, 0:10:36.520 --> 0:10:38.280 I'm going to buy at all costs, and then you know, 0:10:38.440 --> 0:10:40.880 hearts are fluttering in Europe when that goes ahead, and 0:10:40.920 --> 0:10:43.319 that means that, in a way, of the European energy 0:10:43.360 --> 0:10:46.480 transition an our kind of gas picture. At b NIEF 0:10:46.640 --> 0:10:48.920 we like to call about this kind of one gas world. 0:10:49.120 --> 0:10:52.960 That's increasingly the case, and that's new, that's a new phenomenon. 0:10:53.160 --> 0:10:55.400 And I think I read in your analysis that the 0:10:55.520 --> 0:10:58.920 UK has not kept up with their storage right, so 0:10:58.960 --> 0:11:02.600 they're replying more on L and G because they haven't 0:11:02.600 --> 0:11:04.800 invested as much in storage, so there's not as much 0:11:04.840 --> 0:11:07.520 to draw fround. Is that right? Yeah? This problem is 0:11:07.679 --> 0:11:10.240 structural and goes back a long time. The UK actually 0:11:10.320 --> 0:11:12.120 used to have a huge amount of storage and was 0:11:12.160 --> 0:11:16.200 called the North Sea. So we would in the UK 0:11:16.840 --> 0:11:18.960 ease the North Sea as a storage and then also 0:11:19.040 --> 0:11:20.840 have it as it you could ramp up and down 0:11:20.880 --> 0:11:25.160 domestic supply. That's not the case anymore, and some storage 0:11:25.160 --> 0:11:28.960 sites we even shut down. So there's a structural need 0:11:29.320 --> 0:11:32.040 to build more storage going forward. But it's also not 0:11:32.080 --> 0:11:35.000 a quick fix, right, so we can build new storage 0:11:35.360 --> 0:11:38.240 now to take pressure of this winter or possibly even 0:11:38.280 --> 0:11:41.320 the next winter. But what the UK can do though 0:11:41.800 --> 0:11:44.520 is to really think more about their the lergy contracts, 0:11:44.520 --> 0:11:47.640 you know, improving the energy infrastructure and thinking about how 0:11:47.720 --> 0:11:51.760 they're going to contract an increasingly global market. I think 0:11:51.760 --> 0:11:54.199 there was a perception in Europe that llen G from 0:11:54.240 --> 0:11:57.280 the US in particular, would take the pressure of reliance 0:11:57.320 --> 0:12:01.280 on Russian imports on domestic production. But you know, allen 0:12:01.360 --> 0:12:03.959 G has a global commodity goes where prices are high, 0:12:04.040 --> 0:12:06.360 and even the high prices in Europe because you know, 0:12:06.400 --> 0:12:08.520 the tightness in the market was visible from the summer 0:12:08.840 --> 0:12:11.720 or European gas team has said the market will be tight, 0:12:12.360 --> 0:12:14.880 and prices started to rise accordingly, but there was still 0:12:14.920 --> 0:12:19.800 not enough to attract fuel and ships from the US. 0:12:19.840 --> 0:12:22.439 And then you know, frankly, there's just a a time 0:12:22.440 --> 0:12:25.800 element like if if if a tanker leaves the US 0:12:25.880 --> 0:12:29.080 and goes to Asia. It takes so too many days 0:12:29.120 --> 0:12:30.959 to go there and then suns when it's come back 0:12:31.000 --> 0:12:32.800 and fill up and go the other way. So it's 0:12:32.800 --> 0:12:34.920 not like you can turn a switch and allen G 0:12:35.120 --> 0:12:37.320 just flows like these these chips around their way. And 0:12:37.600 --> 0:12:40.719 there's some excellent analysis that the allergy has team has 0:12:40.760 --> 0:12:44.439 done about um, you know, twelve small reasons that all 0:12:44.520 --> 0:12:47.120 upset the supply chain. And you know you talked about 0:12:47.120 --> 0:12:51.240 fuel earlier. Shipping supply chains also in disarray for a 0:12:51.320 --> 0:12:54.360 number of reasons. So you can see all these elements 0:12:54.400 --> 0:12:58.040 coming together to form this perfect storm. Is that the 0:12:58.040 --> 0:13:02.280 title of the report, twelve small reasons LERG supply gets 0:13:02.280 --> 0:13:03.960 mest up. I don't know. Well, we'll look it up 0:13:04.000 --> 0:13:06.320 and we'll put in the notes. It's the lesser like 0:13:06.480 --> 0:13:08.800 some of the lesser lesser talked about reasons. But there's 0:13:08.840 --> 0:13:12.240 this whole litany of things and and some local factors 0:13:12.280 --> 0:13:14.640 as well. Right, if the UK had a fire in 0:13:14.640 --> 0:13:20.160 one of its major substations, there's some unplanned outages and 0:13:20.480 --> 0:13:24.240 some plant maintenance work on the power plants because those 0:13:24.240 --> 0:13:27.760 measures were deferred during COVID times. So all the maintenance 0:13:27.760 --> 0:13:30.320 schedule us a little bit upset. And in a way, 0:13:30.440 --> 0:13:32.240 it used to be that the winter season was what 0:13:32.320 --> 0:13:34.520 the focus was on, right because say, well, during the winter, 0:13:34.640 --> 0:13:37.040 everything needs to be ready and we think about supply margin. 0:13:37.320 --> 0:13:39.680 But now that was already the k last year that 0:13:39.720 --> 0:13:43.560 the shoulder seasons are actually more dangerous. The shoulder seasons 0:13:43.600 --> 0:13:48.120 is gonna bring and autumn when suddenly the system is 0:13:48.160 --> 0:13:50.920 getting ready for winter. But winter might come early, or 0:13:50.960 --> 0:13:54.679 we might have a lull in wind power. So the 0:13:54.800 --> 0:13:58.880 shoulder seasons in many ways have become more dangerous than 0:13:59.120 --> 0:14:01.880 the winter seasons now for a very short break. Stay 0:14:01.920 --> 0:14:09.760 with us. So globally connected gas market, lower than average storage, 0:14:10.360 --> 0:14:12.719 higher dependence on L and G, which is becoming more 0:14:12.760 --> 0:14:16.600 competitive to to get contracts, Difficulty getting gas from Russia. 0:14:16.640 --> 0:14:18.679 They're filling up their own stores before sending it over 0:14:18.720 --> 0:14:21.760 to Europe. The list goes on with gas. Let's let's 0:14:21.840 --> 0:14:25.080 keep going with with Cole. So Cole is kind of 0:14:25.080 --> 0:14:28.280 a weird one. I think I remember back in Geez. 0:14:28.320 --> 0:14:30.280 I don't remember what year it was. I think it 0:14:30.320 --> 0:14:33.840 was around Fukushima, around when Germany said, you know what, 0:14:33.840 --> 0:14:36.000 we're going to shut down our nuclear as well, and 0:14:36.040 --> 0:14:38.760 they did, and they kept on the coal, but now 0:14:38.840 --> 0:14:41.840 it's going out of being run of the market by economics, right, 0:14:42.280 --> 0:14:44.080 Can you explain kind of what's going on with coal, 0:14:44.160 --> 0:14:46.840 how some is surviving, how some is contributing, you know, 0:14:47.240 --> 0:14:49.600 more to the grid right now? Basically what's going on 0:14:49.600 --> 0:14:52.360 with coal? So Europe has embarked on this journey where 0:14:52.400 --> 0:14:54.160 us say we're gonna shut down COLE, right and we're 0:14:54.160 --> 0:14:56.840 gonna phase out COLE and as you mentioned, some market 0:14:56.880 --> 0:15:00.640 stuff put in strict timelines. Others are probably working on them, 0:15:00.720 --> 0:15:04.480 and even markets like Poland, which is very reliant on coal, 0:15:04.560 --> 0:15:06.600 have said they want to phase out COLE eventually. So 0:15:06.640 --> 0:15:10.080 that's good. The challenge at this point is that while 0:15:10.240 --> 0:15:13.880 coal was really out of the market last year when 0:15:14.000 --> 0:15:17.040 when we had all these COVID upsets in the market, 0:15:17.080 --> 0:15:19.800 this year it is back, and it's back because of 0:15:19.880 --> 0:15:22.840 high gas prices. And in Europe there are two types 0:15:22.880 --> 0:15:25.720 of coal. So there's hard call, which is kind of 0:15:25.960 --> 0:15:29.000 more energy dense and that's kind of traded globally to 0:15:29.240 --> 0:15:32.680 to degree, and then there's lignite, which is the kind 0:15:32.680 --> 0:15:35.960 of brown call, is less energy dense. It's mind locally 0:15:36.120 --> 0:15:39.600 it is very polluting and the irony of this year 0:15:39.640 --> 0:15:43.440 is that lignite is the only call that's in the money. 0:15:43.520 --> 0:15:46.360 So if your own a lignant cold station at the moment, 0:15:46.400 --> 0:15:49.080 you're you're just printing money because gas is high, hard 0:15:49.120 --> 0:15:52.560 core is high. Carbon pyramids are high as well, but 0:15:52.680 --> 0:15:56.320 you're still cheaper than the competition. So it's been a 0:15:56.320 --> 0:15:59.440 real reversal from from last year. Last year we were 0:15:59.440 --> 0:16:02.280 at the point where every gas plant that could possibly 0:16:02.400 --> 0:16:06.000 run to displace coal was running and cole was kind 0:16:06.000 --> 0:16:08.320 of at its absolute minimum. We still we still think 0:16:08.360 --> 0:16:11.360 that in the long run economic coal fiz art will continue, 0:16:11.400 --> 0:16:13.200 but this year has been kind of a bit of 0:16:13.200 --> 0:16:15.320 a reversal of fortunes in that sense. And it's going 0:16:15.360 --> 0:16:18.520 to be bad for emissions, right, It's not great for emissions, 0:16:18.600 --> 0:16:21.480 And we're actually forecasting that will be up on emissions, 0:16:21.680 --> 0:16:26.840 up on last year, up in probably north and then 0:16:26.880 --> 0:16:31.160 even up on you, which is the reference here of 0:16:31.240 --> 0:16:34.080 the of the before times. So it's it's not a 0:16:34.120 --> 0:16:38.960 great picture when you look at emissions at the moment. Jeez, Okay, 0:16:39.200 --> 0:16:41.360 we'll get to renewables, but can we touch on carbon 0:16:41.480 --> 0:16:43.160 first since we're kind of on that with CEO two. 0:16:43.160 --> 0:16:46.240 Emissions and the impact on cold etcetera. I mean, so 0:16:46.360 --> 0:16:49.200 Europe has a carbon price, right something that is more 0:16:49.280 --> 0:16:52.560 or less unique to to a whole you know, continent. 0:16:52.640 --> 0:16:54.600 I guess you could say, but can you explain kind 0:16:54.640 --> 0:16:56.760 of what's going on with carbon and where it's at 0:16:56.840 --> 0:17:00.320 right now? The European carbon market is one of kind 0:17:00.360 --> 0:17:02.840 of the main instruments for the European Union to decarbon 0:17:02.880 --> 0:17:06.800 as the power market, and it's effectively putting a regulated 0:17:06.880 --> 0:17:10.480 price on, putting a cap on carbon emissions and then 0:17:10.560 --> 0:17:13.240 let the market define with the prices. And that price 0:17:13.680 --> 0:17:16.480 was very low of blong time, and then maybe eighteen 0:17:16.480 --> 0:17:20.560 months ago so we really started picking up and going up. 0:17:21.160 --> 0:17:24.359 And right now the carbon price is at around sixty 0:17:24.400 --> 0:17:27.280 five euro per ton, which is double what it was 0:17:27.600 --> 0:17:30.320 last year or less. And that's been driven partly by 0:17:30.640 --> 0:17:34.040 expected tightness in the market, you know, as in Europe 0:17:34.040 --> 0:17:37.200 we have a whole package called Fit for fifty five 0:17:37.280 --> 0:17:41.479 or we call it, where Europe tries to reduce its 0:17:41.560 --> 0:17:45.760 missions to and then the carbon market is part of that. 0:17:46.320 --> 0:17:50.119 So the carbon market has been rising anticipations of regulations 0:17:50.119 --> 0:17:53.520 and policy that will constrain supply of carbon permits in 0:17:53.520 --> 0:17:57.280 the future, and At the same time, there's been a 0:17:57.640 --> 0:18:00.960 whole influx of trader is of a kind of new 0:18:01.000 --> 0:18:03.720 participants in the market that has driven the price. And 0:18:04.080 --> 0:18:06.320 because the carbon price and the gas price are linked 0:18:06.320 --> 0:18:08.320 to a degree, it has kind of risen with the 0:18:08.400 --> 0:18:11.320 gas price. But the carbon market has decoupled from the 0:18:11.359 --> 0:18:15.520 gas market over the summer, and that's partly because it 0:18:15.640 --> 0:18:19.439 is now so ridiculously high that kind of both markets 0:18:19.440 --> 0:18:21.480 are almost like free floating. You know. It's like when 0:18:21.480 --> 0:18:24.720 you're in a plane, you're the one of these space planes. 0:18:24.760 --> 0:18:26.600 You're in the apex of the curve, and everybody is 0:18:26.640 --> 0:18:29.840 just floating and unconnected to like the fundamentals. So we 0:18:29.840 --> 0:18:31.800 would expect the market to be high, and we actually 0:18:32.440 --> 0:18:35.240 we're still bullish on the market in October, but it 0:18:35.280 --> 0:18:37.480 just won't catch up with a stampede in the European 0:18:37.960 --> 0:18:40.520 gas market. So still be high, but gas is going 0:18:40.560 --> 0:18:43.560 to be still higher kind of going forward. Yeah, at 0:18:43.560 --> 0:18:45.440 this point, it's hard to see how gas prices can 0:18:45.440 --> 0:18:48.440 come down quickly because of real tightness and because there's 0:18:48.480 --> 0:18:52.440 there's no quick solution that could elevate the shortness. For 0:18:52.440 --> 0:18:55.119 for this winter, it seems like the carbon market is 0:18:55.200 --> 0:18:59.040 kind of doing its job right. It's it's it's putting 0:18:59.040 --> 0:19:01.920 a price on emissions. But my question, maybe you don't 0:19:01.920 --> 0:19:04.080 know the answer to this. I don't know, But is 0:19:04.119 --> 0:19:07.080 support for the market still strong? Are people saying it awesome, 0:19:07.119 --> 0:19:09.040 this is great, it's do a good job. But in 0:19:09.080 --> 0:19:11.000 the face of an energy crunch, are people saying, like, 0:19:11.160 --> 0:19:13.480 I wish we didn't have this, this carbon market, Like 0:19:13.680 --> 0:19:16.760 what's the general feel? Yeah, that's a good question. Maybe 0:19:16.760 --> 0:19:19.399 just take a step backward. The carbon market is not 0:19:19.480 --> 0:19:21.760 just looking at the carbonizing the power market, but it's 0:19:21.760 --> 0:19:24.560 also looking at the carbonizing industry. It will do the 0:19:24.560 --> 0:19:28.679 combonizing transport. So because gas is so high in the 0:19:28.760 --> 0:19:31.919 power market, the carbon price is not the factor at 0:19:31.920 --> 0:19:34.280 the moment. It is one factor that drives high prices, 0:19:34.320 --> 0:19:36.840 but you know, gas is by far the most important one. 0:19:37.400 --> 0:19:41.800 What's interesting those as we're extending the carbon market to 0:19:42.359 --> 0:19:45.679 more sectors, as we're tightening some of the kind of 0:19:46.680 --> 0:19:51.760 availability for for certificates for industry, the carbon market just 0:19:51.920 --> 0:19:55.320 background and gives some free allocation to two sectors, which 0:19:55.359 --> 0:19:58.360 means that you know, industrial sectors at the moment are 0:19:58.400 --> 0:20:01.520 not really tight on permits. But if the price is 0:20:01.520 --> 0:20:04.200 really high and remains really high. That should worry steel producers, 0:20:04.200 --> 0:20:07.320 That should worry aluminium smelters, that should worry a whole 0:20:07.320 --> 0:20:09.439 bunch of industries that are further down the line. So 0:20:09.480 --> 0:20:12.719 in a sense, you would expect opposition not necessarily come 0:20:12.760 --> 0:20:15.159 from the power sector, which is like busy elsewhere, but 0:20:15.359 --> 0:20:19.840 from industry, and a lot of the reforms that are 0:20:20.320 --> 0:20:23.520 underway for the for the European car markets and for 0:20:23.600 --> 0:20:26.919 this package are still in discussion right so as these 0:20:26.920 --> 0:20:31.240 discussions rumble on, we're looking for signs whether participants and 0:20:31.320 --> 0:20:33.760