European energy demand picking up?

The press reported this week that electricity demand in Europe is starting to rise again whereas gas demand is still falling. According to a Société Générale report total electricity consumption in France, UK, Italy, Belgium, Greece, Portugal, Denmark, Spain and Poland fell by 4.9% year on year to 871.8 TWh in the first six months of 2009. Including July, however, the drop in consumption was “only” 4.8%. Gas demand is still falling. Should we interpret this as another sign of the recovering European economy?

First of all, we need to be very careful with the interpretation of energy demand statistics. Power demand is influenced by a multitude of factors. Recently, the global shape of the economy had a predominant influence. But we should be careful, it is only one of the factor. In July, weather conditions are an important factor. If weather in the countries cited was hotter than usual, cooling applications might have increased overall consumption.

Of course, we cannot deny that in contrast to certainly the first quarter of this year, the news regarding the economy is no longer unanimously negative. And this news of recovering electricity demand fits in this line. Only time will be able to tell us whether it really were the first signs of a fundamental recovery.

Demand down 4,8%, that still means that there is a lot of excess production capacity in the market. Therefore, we still see energy prices pushed down. This week we even saw a mini bear rally with German EEX prices for next year’s baseload power currently trying to break below 50 euro per MWh. So, as far as European power prices are concerned, there is no sign of a recovery. The same holds for gas prices traded at the NBP, TTF, Zeebrugge or other Hubs. This means that there is still opportunity out there for energy buyers.

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