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European energy markets in deep slumber

Things are not looking comfy with Europe’s energy markets. Power, coal and gas are all in their sharpest slump since the financial crisis of 2008. And any chance of a big rebound now and even in the near future has been diminished by increasing capacity and subdued demand. This year the gas futures market has lost about 15 percent of its value.

There is some hope that there may be economic recovery and the closure of unprofitable capacity, but experts say overcapacity still weighs heavily on Europe’s power market coupled with the subdued demand.

Coal prices have plummeted because of the supply coming to the market from exporters such as Indonesia, South Africa, Colombia and Australia, while demand growth has dwindled in emerging and industrialized markets.

Analysts at French Bank Societe Generale said that excess supply from coal producing countries aggravated by weakened Asian demand continue to affect the current international coal prices. There is a ray of hope though; the Chinese and Indian demand may help coal prices to pick up next year.

India’s demand growth slowed over the past year as consumers lowered the volume of their orders due to low industry output and a fall in the value of rupee currency. This made the dollar-traded imports to be more expensive.

Gas prices have not been spared either; though the fall took a bit longer because of the demand by Middle East Asia for liquefied natural gas and the unrest in North Africa. Recently, there are also fears that Russia might cut supplies to Ukraine, which is a very important transit route for EU imports.

Timera Energy, a consultancy firm, said the fall in coal prices is more than a seasonal decline. They said it reflects a North West European gas market that is oversupplied.

And Societe Generale analysts added that not only is Europe back to pre-2000 level of coal demand, but there is no chance of ever seeing a demand of 500 billion cubic meters being attained even if the winter was extremely cold. They added that the European Union’s efforts to lower dependence on fossil fuels would make matters worse by lowering consumption further towards 2020.

Europe’s gas demand has fallen from about 525 billion cubic meters in early 2000s to about 480 billion cubic meters currently. Matters have not been helped by the mild winter that has also reduced heating demand.

Another reason for the slump in power, gas and coal prices is growing renewable energy supply. There are subsidies offered in this sector with the aim of making Europe’s electricity sector environment-friendly.

According to Jacopo Moccia of the European Wind Energy Association, renewable energy development in Europe has reached an advanced level, impacting negatively on electricity prices; so the fall in electricity prices is not just daily fluctuations.

And according to EWEA, some 23 gigawatts of wind power capacity was installed across the EU in 2012-2013.

Solar power is also being harnessed, as is coal, with many new power stations that use coal set to connect to the national grid in the next two or so years.

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