Meteomatics continuously reviews the weather factors that contribute to the development of the current energy crisis, and explores the impacts colder temperatures could bring to households and businesses as we enter the winter months. Our analysis of the most influential weather factors, as well as the influence of other factors, indicates that energy prices in Europe and other regions will very likely continue to rise in the coming months. An increase in prices was already seen for gas at the end of October. Here is an outlook for the coming November and beyond.

Why have wholesale energy prices increased so much?

The energy sector continues to experience a crisis due to a combination of geopolitical factors, decreasing investment in hydrocarbons, rising demand in Asia for gas and reduction in wind speeds impacting energy production. All helped to create a surge in energy prices, which reached record highs for September across many global energy markets.

The UK has experienced a dramatic increase in the price of electricity, with prices surging to £481.88 on Wednesday 15th September (Source EPX SPOT). The UK has been prone to record hikes in electricity costs this autumn as it reduced its gas storage capacity in 2016, which is used to generate around 40% of the UK’s electricity, making it vulnerable to market volatility. The UK stores enough gas to meet the demand of four to five winter days or just 1% of Europe’s total available storage. The Netherlands has a capacity of more than nine times the UK’s, while Germany’s is 16 times the size.

Yet, the unseasonably cold temperatures in early spring depleted European gas reserves more than usual. The gas storage replenishment season starts in April, but the cold weather in April and May resulted in further depletion of reserves, which has been compounded by a cold start to Autumn and a lack of wind, further increasing demand for gas.

The lack of wind – which typically provides 20% of UK generation capacity – this September and August  further intensified the situation in the energy market. Hence, there is a fear that the UK’s exposure to energy price volatility could bring significant challenges to consumers and businesses this winter, especially if the country encounters particularly cold weather. Back in 2018, the UK’s energy operator (National Grid) issued a formal warning that the country did not have enough gas to meet demand during the ‘Beast from the East’. Whilst the UK didn’t run out of gas, the warning resulted in gas prices surging by almost 75% in a day.

Continental Europe is also in a precarious situation with gas reserves below expected levels for the time of year and high demand in Asia as the region bounces back from the COVID-19 pandemic, impacting the global wholesale gas markets. Energy costs could escalate further if cold weather in Asia drives up demand.

Weather outlook for late October and early November

In summary, we expect Europe to experience a much more dynamic development of weather influencing factors over the next few weeks in Europe. A series of low-pressure systems will bring cold weather, as is shown in the chart below.

2021-10-21 12Z

An extremely undulant pattern persists across the Northern hemisphere. It’s quite remarkable how far south the cold air penetrates, especially in eastern Asia (see figure 1).

Meteomatics Chart Temperature @ 850 hPa 2021-10-21

Figure 1: 2021-10-21 12Z: Global weather map showing temperature and dynamics of high and low air pressure systems

The shifted jet stream pattern is expected to bring high wind speeds across the southern UK, North Sea, northern Germany, southern Scandinavia, Poland, Baltic Sea and the Baltics, which will help boost wind power production. In contrast, the high-pressure system in the south will lead to very weak wind conditions.

In Europe we expect a large low-pressure system over Scandinavia to become the main driver of the weather, bringing westerly flows in central Europe (mild but moist) with high speeds in southern Scandinavia, northern Germany, Poland, North Sea, Baltic Sea and Baltics. North America is expected to see cold air masses spreading across Canada and further south.

Autumn outlook and beyond

Temperatures are expected to decrease as we move through the month, however, there are signals for low temperatures that again could coincide with low wind speeds.

Meteomatics Chart Ensemble Spread (London) 2021-10-22 / 11-15

Figure 2: Meteomatics Chart Ensemble (London) 2 meter temperature 2021-10-22 / 11-15

Looking further ahead, it appears that the trend towards colder temperatures will continue, with a drop expected in early December to continue throughout the month and into January, with an increasing possibility of freezing temperatures in December.

Figure 3: Meteomatics Chart Ensemble (London) 2 meter temperature 2021-11-16 / 2022-01-01

Whilst temperatures are also expected to decrease in Berlin as is typical for the time of year, the risk of low temperatures will increase from 7th November onwards.

Meteomatics Chart Ensemble (Berlin) 2 meter temperature 2021-10-22 / 11-15

Figure 4: Meteomatics Chart Ensemble (Berlin) 2 meter temperature 2021-10-22 / 11-15

Taking Berlin as representative of Europe, it appears that temperatures will become much colder in early December, with the possibility of a further drop in temperatures in mid-December, with a signal for very cold temperatures during the Christmas period which could persist until early January.

Meteomatics Chart Ensemble (Berlin) 2 meter temperature 2021-11-16 / 2022-01-01

Figure 5: Meteomatics Chart Ensemble (Berlin) 2 meter temperature 2021-11-16 / 2022-01-01

 

Early winter impacting China’s energy demand and global prices

Energy demand has boomed in China as manufacturing recovers from the pandemic, but early cold weather has added to the demand for heating, leading to an increase in energy prices and leading to rationing of energy in 17 of mainland China’s 30 regions.

Several regions in northern China, including Inner Mongolia and Gansu, have started winter heating already, to cope with the colder-than-normal weather.

Autumn outlook and beyond: Asia

Temperatures are expected to decrease in Inner Mongolia towards the end of October, with a slight recovery before falling to lower temperatures throughout November as westerly flows dominate.

Looking further ahead for Inner Mongolia, it appears that temperatures will become much colder in late November and continue to decline throughout December and persist until early January.

Meteomatics Chart Ensemble (Hohhot Inner Mongolia) 2-meter temperature 2021-11-16 / 2022-01-01

Figure 6: Meteomatics Chart Ensemble (Hohhot Inner Mongolia) 2-meter temperature 2021-11-16 / 2022-01-01

 

Conclusion

There is little prospect of the drivers of the energy crisis improving, in-fact the signal associated with colder temperatures across the northern hemisphere persists, with the possibility of cold outbreaks in December, driving up energy demand. Tipping-points for the energy industry will occur if cold dark days in November and December coincide with windless days, which will impact power generated by wind and impact prices further.

Meteomatics will continue to monitor the situation to help customers and industry identify any potential impacts of weather on energy demand and wholesale prices. With our weather data service and our customized energy forecasting products for wind, solar and hydro, Meteomatics’ customers realize benefits in the market every day. Contact Meteomatics to learn more about our solutions: [email protected]