Page 13 - EurOil Week 24 2022

EurOil POLICY EurOil

Portugal, Spain cap gas prices

for power plants

EU MOVES by Portugal and Spain to cap the cost have been hit hard by the rise in electricity prices
of natural gas at power plants have been cleared due to Russia’s invasion of Ukraine,” European
The moves have under EU state aid rules by the European Com- Energy Commissioner Margrethe Vestager said
been cleared by the mission, the latter said on June 8. in a statement. “At the same time, the integrity of
European Commission In order to reduce electricity costs for con- the single market will be preserved.”
of state aid rules. sumers, Spain and Portugal intend to provide She added that the subsidies would allow
€8.4bn ($9bn) in subsidies to power plants. The Spain and Portugal “some time to enact reforms
subsidies prevent them from paying any more that will increase the future resilience of their
than €48.8 per MWh of gas supply on average electricity system, in line with the Green Deal
until May 31, 2023. Over the next six months objectives, and will ultimately mitigate even
they will pay no more than €40 per MWh, but further the effects of the energy crisis on final
the cap will then increase by €5 per MWh each consumers.”
month until a price of €70 per MWh is reached Countries across Europe are under pressure
in the twelfth month. to curb energy prices for consumers, as cutbacks
The subsidies will be paid for from income in Russian gas supply have exacerbated the
that Spain’s transmission system operator (TSO) extreme market tightness that has been building
earns from cross-border electricity trade with up since a year ago, as a result of a sharp rebound
France, as well as with funds raised from a charge in demand after most coronavirus (COVID-19)
imposed by Spain and Portugal on buyers that pandemic restrictions were eased.
benefit from the measure. The price cap to lesser extent will apply to coal
“The temporarily measure we approved today supplies that are used at power plants. Following
will allow Spain and Portugal to lower electricity the European Commission’s approval, it is now
prices for consumers who have been hit hard by up to Spain and Portugal to flesh out how the
the rise in electricity prices for consumers who subsidies will be arranged in detail. ™

Gneiss: The wider implications of a

ban on Russian oil

EUROPE THIS week, Doug Rycroft, director at corporate has been trading at a ca. $35 per barrel discount
finance advisory firm Gneiss Energy, spoke to to other similar medium sour blends. Currently
Doug Rycroft is a NewsBase about the implications of banning those alternatives are trading at parity with most
director at Gneiss Russian oil. global benchmarks, e.g. Arab light is trading at
Energy, a strategic "As the conflict continues to rage in Ukraine, ca.$113 per bbl.
and corporate finance the EU has announced a further package of sanc- "But that is not the only potential issue. Many
advisory firm operating tions on Russian interests. The focus of the latest refineries in Europe are configured for Urals
within the energy round of sanctions is a ban on oil imports from blend – API gravity of 30.6 and a sulphur per-
and natural resources Russia. The ban will immediately impact 75% of centage of 1.48. So replacing this with oil sourced
sectors. Russian oil imports to Europe and, by the end of from elsewhere could potentially lead to expen-
2022, up to 90% of imported oil will be banned. sive reconfiguration of refinery infrastructure.
"In the grand scheme of things, the argument "This combination of a global rebalancing
that buying Russian hydrocarbons is fuelling of oil flows, increased commodity prices and
the Kremlin’s war machine seems quite a simple expensive reconfiguration activity will undoubt-
one to make and therefore banning that activity edly lead to higher pricing for oil products,
seems an obvious step. But what could be the impacting all sectors. We are already seeing the
wider consequences of this? effects of this in the US where refined product
"Put simply, large parts of Europe are now exports are soaring.
in the market for a new oil supplier. And in a "So whilst the EU has made the obvious and
seller’s market, there is a strong possibility of a correct moral decision, further consideration
surge in demand leading to further price infla- will be needed to mitigate the impacts on busi-
tion on top of current soaring prices. Mean- nesses and consumers, and, of course, the further
while, another consequence is that Urals blend burden this will place on our cost of living."™

Week 24 16•June•2022 www. NEWSBASE .com P13