Unprecedented Market Conditions Highlight the Need for Interconnection Investments and the Role of Trading Companies in the Electricity Market
Yesterday, we witnessed an unusual scenario in the electricity market that underscored the stark divide in market pricing on the Nord Pool exchange. The extreme cold over Scandinavia - temperatures below -40C some places - led to a clear separation between the pricing areas supplied by mainland Europe - including Kristiansand in the south of Norway 🇳🇴 and Western Denmark 🇩🇰 - and those who were not.
The prices in the former areas hovered around 100 € per MWh, while the latter soared to over 500 € per MWh, and even close to 1500 € per MWh in Finland 🇫🇮. This disparity clearly illustrates the urgent need for major investments in interconnection capacity between the pricing areas.
In this context, the role of trading companies, like Danske Commodities, a Danish subsidiary of Equinor, becomes crucial. They play a significant part in matching supply with demand and optimizing the interconnection capacities. Their efforts ensure that everyone is getting electricity at the best possible price.
As we continue to navigate the ongoing green shift in energy markets, these investments are more crucial than ever. They will not only help balance the market prices but also ensure a more resilient and sustainable energy future.
Refer to the attached map for a detailed view of the pricing situation in Scandinavia yesterday (5/1/24) at the evening peak between 17 and 18 hours. The map provides a clear visual representation of the stark price differences across the region.
Moreover, it's worth noting that Danske Commodities is a fully digital and data-driven company, with as many data scientists and engineers as traders. They utilize advanced weather, production and consumption forecasting models, very similar to the dynamic choke models and digital twins we have in upstream E&P. This is an interesting example of what would be possible in a digital oil and gas company, showcasing the potential of digital transformation in the energy sector.
Let's take this as a wake-up call to accelerate our efforts in enhancing the interconnection capacity and work towards a more integrated and efficient energy market.
Alessandro Blasi Torbjørn F. Folgerø martin cyrot
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Executive Director and Researcher at IEI Brasil - International Energy Initiative
3moIt would be importat to include in the analysis the oil demanded by export-based product production in China. This would help to understand the share of oil demand that is embedded to meet the world's product purchase made in China (by Chinese and multinationals in China) compared to the oil demand embedded in products and services that is consumed in the Chinese domestic market. In summary, China is not demanding oil only for domestic purposes, but also as a giant world products exporter. As far as I could read in the report, this fact is not made explicit and, in my view, makes all the difference.