Europe Has a Gas Drama

"Depleted gas stores after the coldest winter since 2012, coupled with pipeline constraints on flows from Russia and Norway, have driven prices to their highest level in at least five years. The result: generating electricity from gas is unprofitable for many utilities, according to Bloomberg calculations based on the cost of fuel, power and emission permits."

Well, this is a surprise. I thought there were enough pipelines. One author was even arguing there's 5.5 bcm spare capacity. Whatever happened?

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Looks like the Buyers did not sign long-term fixed price supply contracts.  When your supply contract floats with some spot market or benchmark price as a reference point, you effectively forego the advantages of being able to calculate your power sales margins.  Then again, Gazprom may only be offering product on a float against a benchmark.  Nothing like a cold winter to bring these costs into a sharp focus, that's for sure. 

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