Demand destruction

Drought, heatwaves, weak river and hydro levels, combined with record low French nuclear output and dwindling gas supplies are driving energy prices to fresh highs on a daily basis. Aluminium producers and fertiliser firms have already announced closures across Europe. Listen to a discussion on the outlook for industry over the months ahead. Will it experience demand reduction or destruction?

Host: Richard Sverrisson, Editor-in-Chief, Montel
Guests: Tobias Federico, CEO, Energy Brainpool
                  Mark Turner, Partner, Baringa
                  Alexander Andresen, Head of Power Procurement, Elkem.

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bring Your Energy Matters in informal setting. In this week's episode, we take a look at the outlook for energy demand amid droughts, heat waves, record low river and hydro levels, dwindling gas supply and issues with France's nuclear fleet. Some industrial units at fertilizer factories and aluminum smelters have already announced closures. To what extent have we witnessed demand destruction and what industries are at further threat of closure or mothballing due to extremely high energy prices? We have three experts for you this week, but divided the pod into two parts. I hope you enjoyed the discussion that was recorded on the sidelines of Montel's Nordic Energy Day.. Joining me Richardson to talk about the demand outlook in Germany, is our old friend Tobias Federico. Tobias, a warm welcome to you.

Tobias Federico, CEO, Energy Brainpool: 1:00

Thank you, Richard. It's always a pleasure to talk to you.

Richard Sverrisson, Editor-in-Chief, Montel: 1:03

Perfect. I'd like to start by talking about current market dynamics. What is the situation ahead of the winter and what are your main concerns?

Tobias Federico, CEO, Energy Brainpool: 1:12

The market's very dynamic. I think we, skipped the fundamental pricing and come to psychological pricing in the gas market and as well as in the power market. So prices are skyrocketing and due to the market design, we might see extreme prices. These high prices are not coming to the households right now within Germany. It'll will be seen next year or over next year. But we see this in the industrial sector, that they directly see the wholesale market prices in their electricity and gas bills.

Richard Sverrisson, Editor-in-Chief, Montel: 1:40

And this is what I wanted to talk to you about today in particular and the outlook for industry. Have we seen so far in 2022 a reduction in demand? I, is it too soon to be talking about. Demand destruction so far this year?

Tobias Federico, CEO, Energy Brainpool: 1:54

Yeah, it is. It, I think right now, so far, it's too soon to talk about it. We see demand reduction mostly due to fuel switch. And the reason is that most of the industrial sectors still have the old supply contracts. 25% of them are short for next quarter, so they then will reduce or maybe destruct their electricity and gas demand. But right now, currently in the situation, we have a demand reduction, which is mostly due to fuel switch. And in, in which sectors in particular you, of course it's energy intensive industries, but they already did some good hedging. In total. What we see is that in the mediums size industry sector especially glass production, textile sector they might be facing the issues, the price issues.

Richard Sverrisson, Editor-in-Chief, Montel: 2:41

We've seen fertilizer factories, even some big aluminum producers shutting down production in Europe. Do you expect this to happen in Germany?

Tobias Federico, CEO, Energy Brainpool: 2:54

If you have big industries who can swap to other nations or to other continents, then yes. Medium-sized companies, they don't do it right now. What we see in Germany is that they're thinking about shutting down. Due to the high prices. They're not doing it actually right now, but fertilizer sector has some additional problems due to the war and Ukraine and Russia. And it's not only driven by the electricity prices, but also,

Richard Sverrisson, Editor-in-Chief, Montel: 3:18

yeah, these industries, especially the small to medium sized companies, they're the powerhouse of Germany and German's economy. What would this do to, to Germany in general and the economic outlook?

Tobias Federico, CEO, Energy Brainpool: 3:30

It's the backbone of the German economy. That's true. And it has two, two elements. Either they're really shutting down and reducing their workforce which then will lead to a high unemployment rate and lower buying purchase power. Or they have the capacities to transfer the production prices, the new production prices with the high electricity and gas costs down to the end consumer, which then will lead to a much higher inflation rate. So both are not really good news.

Richard Sverrisson, Editor-in-Chief, Montel: 3:57

It's hard to see any good news in the current outlook, but I think. Germany has set a target. It wants to reduce demand by 15%. That's for both electricity and gas, right?

Tobias Federico, CEO, Energy Brainpool: 4:07

No. It's mostly for gas. Yeah. It's not for electricity. I think the industrial sector does well, mostly due to fuel switching. And the issue we talked about before, the household sector and the small medium size is the small businesses. That bakeries, for example, they're also part of the household sector. It's called household and small medium businesses. They're not reducing it all right now, mostly due to the fact that it's heating gas, so we must come into the heating period to see any effect there.

Richard Sverrisson, Editor-in-Chief, Montel: 4:34

And, but if you see this kind of demand reduction, does that, on the industrial sector or even in the household sector up to 15%, would that then mitigate the effect of these very high prices? Could you then see, demo the prices coming down?

Tobias Federico, CEO, Energy Brainpool: 4:50

No, I think we have lost the fundamental pricing. Right now it's all psychological pricing. What it leads to is that it reduces the risk of the real gas shortage. So in German it's called the gas man lager which is expecting to start in the worst case scenario end of December. And the best case scenario, end of January. And if we are able, if we are able to reduce the gas demand by the 15%, it'll reduce the likelihood of this gas shortage.

Richard Sverrisson, Editor-in-Chief, Montel: 5:18

And in terms of storage, where are we now and what's the plan going forward here in gas storage Tobias

Tobias Federico, CEO, Energy Brainpool: 5:24

Actually we are in a very good way. We are currently at 80% gas storage level. We wanted to achieve 75% by the end of August, 85% by the end of September. So here we are in a very good way under the current production out of north Stream one at 20%. There will be this extraordinary maintenance at the end of August. And it's very likely that it will not come up to 20% after that. And but still I think we are going to manage the gas storage levels target we, we wanted to achieve, which is good.

Richard Sverrisson, Editor-in-Chief, Montel: 5:55

What's your view here? You mentioned Nord Stream one. I'd just like to ask you about the likelihood of it coming back at all. And it's, this is clearly parts of Putin's. Strategy to, to weaponize gas, isn't

Tobias Federico, CEO, Energy Brainpool: 6:09

it? Absolutely. Gas is a weapon and it's used against us to hit our economy. If North Stream one would not come back at all we might face technical problems if the gas wells, because there will be so much pressure. That it'll hit the gas wells itself. There are two possibilities. Either at the gas wells, gas will be burned to reduce the pressure within the gas field, or it'll be delivered at very low percentage and I think it's quite likely that'll be the last one. So five 10% might come up in the mid of September again, but not reaching 20, 40 or 100% levels right now until we might not face the gas shortage. So in the case, Putin will see that, we are managing to deal with the winter, then he wants to hit us in the other way. I think it's quite likely that after that he's going to flood us with gas. It's with a technical miracle. North Stream V will produce at 100% in February, and then we have very low gas prices and then we have the other curve, very low prices. And you have a lot of financial yeah. Problems

Richard Sverrisson, Editor-in-Chief, Montel: 7:10

in this case. So that's gonna, that leads me on to the next question, Toby, which to be asked, which is the outlook for next year. How likely is that North Stream one will be producing? A hundred percent. Is that's, from where we are standing now it, it seems a very remote

Tobias Federico, CEO, Energy Brainpool: 7:24

possibility. Right now, yes, because we are facing a tight winter and this is what Putin really wants. I think from a technical design, it's a bit weird that one gas turbine missing causes all these effects because it's a super important technical component and it has redundancies, technical on the technical side. So when or if Putin uses gas as a weapon, there are different strategies and that's why in total I think it's quite unlikely. But in certain scenarios it could be a much higher likelihood. The question is, do we need still that much gas from Russia and do we want to pay him for that? He now is declaring force majeure for the re reduction. He's still a good gas supplier of his point of view because it's a technical issue and nothing he can deal with. But in the end, it's part of this whole campaign. Yeah,

Richard Sverrisson, Editor-in-Chief, Montel: 8:14

it's this sort of turbine blame game. It's quite astonishing really. It's just one excuse after another. The final question, to be honest. We're in extraordinary times, extremely high prices, a scarcity of gas mainly as you say rightly due to Putin and the activities of Russia here. So the situation is you could say, is a result of the war. Households and companies are paying extremely high prices. Is there a case for providing financial supports for, especially for companies ahead of any kind of rationing? What's the likelihood of, a, sorry, long-winded question. A should. Governments provide financial support to ailing companies or supplies, energy companies, or should we and to households,

Tobias Federico, CEO, Energy Brainpool: 9:01

maybe one addition to that the war was the initiator somehow for the problems, but on top of that came other problems, which is the drought and which is also the French nuclear power plants. So it's a combination of lot which is almost a perfect storm. But coming to the question with the financial support. Of course financial support could be helpful in the short term, but just paying the price differences might not be a good investment in the long term. There should be financial support connected to energy efficiency, energy reduction, for example, that you take the money and invest it into lower energy con. Especially in the household sector, and we missed that for years. And in Germany especially, we have the effect of landlord and renter. So who's benefiting from energy efficiency is the person who's renting, but who needs to invest that is the landlord. So there, there is a gap and we must fill that gap. Yes, financial support is needed, but it's just a short term effect. In addition to that, we need an additional package, which is really solving. Problems, which have been there since 20, 30 years.

Richard Sverrisson, Editor-in-Chief, Montel: 10:04

I wouldn't want to be a politician in this market situation, but what would be your recommendation for politicians in Berlin To be,

Tobias Federico, CEO, Energy Brainpool: 10:14

actually, honestly, I must say that the decisions they've made until now, also the reaction time was quite good. Now with this additional gas fee to support a real procurement cost of gas suppliers, has this missing part that obviously also trading companies who are not facing bankruptcy apply for that. So there might be a change in the law. But looking into what they should do is really look into the household. How can we increase energy efficiency in the household in addition to the financial support. But being a politician right now, I totally agree. It's not so easy

Richard Sverrisson, Editor-in-Chief, Montel: 10:48

Tobias thank you very much for joining on Montel Weekly podcast. In the second part of the podcast on demand destruction, I'm speaking to Mark Turner of Baringa. A warm welcome to you, mark.

Mark Turner, Partner, Baringa: 10:58

Thank you.

Richard Sverrisson, Editor-in-Chief, Montel: 10:58

And Alexander Andresen of Elkem, a warm welcome to you as well, Alexander.

Alexander Andresen, Head of Power Procurement, Elkem: 11:02

Thanks a lot.

Richard Sverrisson, Editor-in-Chief, Montel: 11:03

Yeah. I'd like to start off with, by asking you, Alexander, about your concerns ahead of the winter given the current market situation.

Alexander Andresen, Head of Power Procurement, Elkem: 11:13

That's that's quite good. Good questions. And there's plenty of plenty of things to be concerned about. I think the power market now in, in Norway and in, in the, in in Europe is in a quite, i'd say it's a bad situation. It's a dire situation. And for most large industries like ourselves in chem we have long term power contracts. So we are not really that concerned about the power price as such in the short term. For us the biggest concern is actually security of supply and the risk of being curtailed or being rationed. That's probably the biggest biggest risk as I see it. And then longer term, of course, the price is also a big concern. Absolutely.

Richard Sverrisson, Editor-in-Chief, Montel: 11:50

And Mark what are you hearing when with, in, in the market at the moment? What are people's fears ahead of the winter season?

Mark Turner, Partner, Baringa: 11:56

Yeah, there, there's almost such a long list at the moment that you know we could you where to stop on this? I think price, I think for unhedged consumers prices are very concerning at the moment. Also, the disparity between regions and we're here at the Nordic Energy Day conference and we heard this morning. About the huge disparity between the north of Norway and the south of Norway and the high prices in the south, close to zero in the north, that's causing tensions in a number of markets. I think security of supply, absolutely agree is really top of mind. Then there are things like weather impacts and we might expand on this further, but the situation is bad, but if we have a cold winter. In Europe, then that will hugely increase the severity of the situation. And then personally, I think that the risk of energy nationalism is, in my opinion, a big concern. So I this fear, I think that if there is a stress situation. Countries will start to act in that nationalistic way and avoid the sharing of resources, close off interconnection, that sort of thing. Again, my view is we're all in this together. We need to have an integrated response. But I would say that's a pretty high concern as well.

Richard Sverrisson, Editor-in-Chief, Montel: 13:20

What's your view here, Alexander?

Alexander Andresen, Head of Power Procurement, Elkem: 13:22

I'd also like to add another thing, and that's. It's difficult to see the end of the problems. We've had periods of high power prices before in Nordic and other places in Europe. Then it's usually related to things like short term outages of nuclear plants. It's a dry weather or cold weather, things like that. Where the power system as such has not really changed. And you can see the end of it. You know that the weather is mean reverting, and if it's dry then, and so at the later stage, it's the it's gonna, it's gonna rain more. But the difference now is that. It's really difficult to see what's the end of this? How is it gonna, how is it gonna end? A lot of at least the price problems hinges on the gas price. So in order to bring the gas price down, then how are we gonna do that? It gonna increase in import from Russia. Again, it doesn't really seem very likely or you have to import additional LNG, which is maybe possible, but. Also takes time to, to expand capacity and so on. So it's, it really seems like it's gonna, it's gonna go on for a long time. What are

Richard Sverrisson, Editor-in-Chief, Montel: 14:25

the solutions Alexander here, do you think the market design needs to be changed or altered? Is the current way of, operating the wholesale market, is it fit for purpose for industrial groups such as yourself?

Alexander Andresen, Head of Power Procurement, Elkem: 14:38

I think, long term I think that the problem is is solvable and I think the solution is pretty obvious. That's its energy efficiency, it's building more production or power production capacity. But the big problem is that it, the problem has to be solved. On the short term as well. So it has to be sold immediately, and then the solutions are not as obvious. And then it's very easy to resort to market intervention because that's, it's more or less the only, only thing that can affect prices. Short, short term. And in Che we're also a big fan of free trade open markets, let the market work. But there is, as we also discussed on the conference today there's this kind of disparity between, economic optimal outcome and what's politically acceptable. And as we see these days, the power market works but it's a hard sell for politicians to tell voters that the power market works while they're freezing.

Richard Sverrisson, Editor-in-Chief, Montel: 15:32

Absolutely. I, of course, and and the, population's demand action or demand some sort of some sort of change in order to alleviate their increasingly different difficult cost of living. If I can turn to what we've seen so far in 2022, mark, have we seen a reduction in demand, of the, of demand for both gas and power in Europe in 2022.

Mark Turner, Partner, Baringa: 15:53

So the picture around demand so far this year is interestingly quite mixed. So we have seen shutdowns, which have been widely reported around some energy intensive industries, particularly around fertilizers, around chemicals, chemical feedstock. So there's a very high profile announcement of, an ammonia plant, permanent closure. In the UK we've had urea production, methanol production shutting down really across Europe. So we've seen examples in the Netherlands, Spain, Italy, Croatia, Romania. All of those have had industrial plants that have curtailed production. So we have seen that, and especially around those producers that are not heavily hedged as clearly a lot of the big producers in certainly the Nordic region are. I think though elsewhere, honestly I don't think we have seen a lot of evidence yet of demand destruction. And indeed we've seen demand being higher year on year, on the power side in a number of markets across Europe, partly linked with a very high temperatures, very high air conditioning load. So especially Italy and Spain, for example. In fact, I think Italy this morning reported around two to 3% higher power demand. So far this year versus last year. So I think it is it is mixed.

Richard Sverrisson, Editor-in-Chief, Montel: 17:16

And Alexandra, if I, is it too soon to talk of destruction rather than demand reduction?

Alexander Andresen, Head of Power Procurement, Elkem: 17:23

I think we can already speak of demand destruction because some of these. Closers of industrial plants that we have seen over the last 12 months are probably gonna be permanent. When you curtail or when you, you shut, when you shut down a plant, then you don't revive production of that plant before. Times are better and the outlook is good and favorable, and that will take some time. I believe, and also in certain industries the cost of restarting a plant can be extremely high, especially in the metal business and especially aluminum. So once you have a closure, then there's always a risk that closure will be more permanent than initially. Thought. Absolutely.

Richard Sverrisson, Editor-in-Chief, Montel: 18:04

You can't just turn these factories on and off. Exactly. Exactly. And of course, that would have, long-term economic effects for the countries at large, and that's definitely concern. Yeah. What's your outlook for next year? Mark, what do you expect here? Do you expect more of these? We, you mentioned chem chemicals and fertilized factories, but also some major aluminum producers have shut down in, in shut down production in continental Europe.

Mark Turner, Partner, Baringa: 18:27

Indeed, and I totally agree. A lot of this is around industries where there's global competition and we know that, while Henry Hub gas prices, for example, have increased, they remain many times lower than we see in Europe. Asian gas prices are also lower, although, they're much higher than in, in the us So this is a, an issue I think for next year. A lot really depends on what happens with Russian gas flows. So I think if there is a continued very low level of import of Russian gas into Europe, then we will be facing probably not a, a. A winter of difficulty, but two or three winters in our view. And I think the idea that this is about getting through the next winter, in my view is a misconception. It looks very difficult through next year, and we will need to deplete gas storage levels to a very low point, likely over the coming winter. Refilling those over the next summer will not be straightforward. And so we see perhaps the next winter after that 20 23, 24 being even more difficult from an energy supply perspective. I think one of the things that. Could almost quote unquote help here around the demand side is just what's happening in the economy. And we already see leading indicators of recession around the European economy as well as globally. China for example, is, is experiencing a slowdown that will. It should help reduce our energy demand overall. Not the same as demand destruction, but and is clearly not a positive thing overall, but it will help to some extent on the power demand and gas demand sides.

Richard Sverrisson, Editor-in-Chief, Montel: 20:14

A lot of what we're seeing. There are a lot of local developments, local situations such as the drought in Europe the depleted hydro reservoirs in Norway, and at the, and the same time gas is very much a global concern and there's a scarcity globally. I dunno how much it would help to move to a different geographic quarter location because you'd still experience, China's experienced severe drought and had to curtail production. America's also seeing increased in, in prices. So does it really help to move production Alexander or.

Alexander Andresen, Head of Power Procurement, Elkem: 20:42

Yeah, that's it's a good question because as you're saying, they have power curtailments in China as well. Power prices in the, in North America are on the rise but still in all of those areas, the cost of energy is much, much lower than in Europe. Partially because industrial tariffs are usually regulated in most countries outside Europe. And also when looking at North America. Gas prices have increased a lot, but they're still far below international LNG prices and also the European gas prices. So it's and on top of that, you have the CO2 cost of course. Absolutely.

Richard Sverrisson, Editor-in-Chief, Montel: 21:14

Yeah, that's an important element here. Is there a fear that there, there could be a domino effect here, Alexander, some. Companies shutting down that this could hit us in 2023. That gradually major industry is forced out of Europe. It's a realistic concern.

Alexander Andresen, Head of Power Procurement, Elkem: 21:30

Yeah. That's it's, at least it's a risk. And the main problem now that has not really been discussed before is that you've had some industrial curtailments over the last 12 months. But the big problem has not really come to the surface yet. And that's. Industry usually sell your products on on forward contracts, like one a quarter ahead, two quarters ahead, maybe one year ahead. So during last winter, then most in industrial companies, at least in the metal business, had already sold their production for the next six to 12 months. And most of them are hedge with long-term PPAs. So they had to run, some did shut down, but most of them had to run. Over time, you will see the high energy prices. The high energy prices will have to be reflected in the sales price of the European companies. And then at these power costs that we've seen over the last half year, most European companies are not really competitive anymore. So I think you, you had some demand destruction over the last 12 months, but I think the real effect might still be ahead of us. Because they had over the last year, they had still had contracts they had to honor. And those are being re renegotiated now.

Richard Sverrisson, Editor-in-Chief, Montel: 22:40

I is What's your view here, Mark? It's the worst yet to come.

Mark Turner, Partner, Baringa: 22:44

It, it could be. And I think, that, that impact on, big industrials I totally agree is gonna crystallize over the next, 12 months, 18 months, and it's very unhelpful. I think for Europe in terms of the longer term view of security of supply, not just of energy, but the ability to source the base chemicals the concrete, the cement, the metals that they need, for industrial growth. And that there has been a drive to bring more of that closer to home in Europe. And again, this, the trend, the potential trend here is unhelpful in that regard as well.

Richard Sverrisson, Editor-in-Chief, Montel: 23:20

So you think. There, there's, there is a danger that a lot of European heavy industry could be forced out.

Mark Turner, Partner, Baringa: 23:26

I think there is that clear risk. It's a, these are global markets. The problem is that this is by and large a European problem right now. There are impacts on gas markets globally, yes. But nowhere near of the sort of impacts that we're seeing in Europe. And therefore, going back to the competitiveness point, the US looks very competitive right now. Asia looks more competitive. There are issues there, but I think there is that risk. Yeah.

Richard Sverrisson, Editor-in-Chief, Montel: 23:53

And. It's very hard. I wouldn't like to be a policymaker, a politician in this kind of environment, but what can you what can we expect or what can we demand from politicians at this time? What are the expectations from industry? How can they help? Yeah.

Alexander Andresen, Head of Power Procurement, Elkem: 24:09

It is indeed a difficult question. And I, I think looking into the far future it's quite easy to answer. Like I, I said previously I think the answer is we have to have more. More power available. It's quite obvious. We, we have to have more production. We have to save as much energy as we can through energy efficiency and so on short term it's more difficult and you easily tend to revert back to solutions around state intervention with prices, state intervention with who gets what. Power supply. And that's it, those are really difficult decisions. And there are so many things to consider, like moral hazard should just. Start to help companies that should have entered into long term contracts but didn't do. So that's difficult. I think with small businesses the answer is probably easier, but then where you draw the line between a small business and the business which is larger and should be, should have hedged the, there are power consumption. So there's a lot of difficult lots of difficult questions lying ahead. And I just want to comment on the, on another thing, on, on the previous question, and that's the interconnectedness of the industrial value chain because the there, there's in industry has a long value chain from like mining through metals and then through. Down to final goods. And all of that is, it's a very complex web of of of specialized products and of contracts and supply chains that have been developed over decades. And when you get this kind of shock and certain producers are more or less forced to curtail production, then you upset that whole supply chain. Now we have some experience with that from the COVID years, but that's, that just adds to the problem.

Richard Sverrisson, Editor-in-Chief, Montel: 25:46

Add and to the complexity, I'm sure. And. I know, probably we wouldn't like to be in the shoes of the politicians at the moment, mark, but what's your view? What options do they have at the moment?

Mark Turner, Partner, Baringa: 25:56

I think it's very difficult and there will be intense pressure for politicians to do something and. Inevitably, there's a lot of noise. There's a lot of discussion around, around the market, around reforming it around big interventions like do we get rid of marginal priced commodity and power markets? Do we completely scrap the current market design? I think when you get a situation like we have now where it's. A huge disparities between the winners and losers in the markets. And the, to be clear, there are not just losers here. There are some players in the market making huge windfalls around current price levels. So the likes of unhedged, renewables, for example. Who in the market earning. Astronomical prices for their production. Similarly with nuclear assets, even with thermal assets, which are making, substantial clean spark spreads at the moment. And therefore, I think some element of redistribution is almost inevitable. The fact is not everyone can be shielded from the market. So unfortunately there will be some players that will suffer over this period. But I think my. My one ask more than anything is that there isn't a knee jerk reform and a knee jerk policy response. I think we still need to look beyond this immediate crisis because I think to Alexander's point, it feels like it won't end it. But it, it will end at some point. And actually my personal view is we may well end up with an overreaction. We bring on, bring online a lot more gas supply. We actually end up with a lower gas price in five, 10 years time than we would've had otherwise. We need to keep our eye on the big picture. Where the energy mix is going in Europe of net zero energy systems, and what is the market design that's gonna be fit for purpose, for that long-term outcome in 20, 30, 40, 50, and not be too deflected by the current crisis as severe as it is.

Richard Sverrisson, Editor-in-Chief, Montel: 28:05

Of course. Any such measure or redistribution is very hard to make fair and equitable. And who sets the criteria, who makes the rules is difficult. Would you have faith in politicians, both on a national EU level to to change the market design in a way that reflects the market dynamics and ever more renewables coming in, and the move towards net zero.

Alexander Andresen, Head of Power Procurement, Elkem: 28:29

I think as you just said I think we, we have to keep the long term. Picture in mind and not do anything or overreact to the current crisis and initiate a new system, which in two or three years is not fit for purpose at that point in time. So it's important to keep the long term, perspective,

Richard Sverrisson, Editor-in-Chief, Montel: 28:47

not, so it says long-term fix rather than this of a plaster approach. Just patching over a patchwork approach of interventions. Yeah.

Alexander Andresen, Head of Power Procurement, Elkem: 28:53

I think it's only two years ago we discussed the risk of energy prices going to zero. So energy would be for free, basically. And what we would pay for is basically the balancing services. And that's, yeah, that's two years ago. And things change fast and there's something called recency bias. So you tend to like just extrapolate the current situation indefinitely or for a long time. If there's anything we learn from this market, is that something something happens that changes that changes the market? Usually it's something unexpected.

Richard Sverrisson, Editor-in-Chief, Montel: 29:24

A final question. Fascinating discussion. Guys, but a final question really is on rationing. Do you expect that maybe it's a last resort, but. What's the likelihood of that happening in over the coming winter, Alexander?

Alexander Andresen, Head of Power Procurement, Elkem: 29:43

I think in Europe as such, I think that's quite likely when you look at the situation now with gas supplies and also the nuclear situation. In, in, in France and also in Germany, there is clearly a lack of enough power and gas. So I think with normal weather going through the winter or. Even colder than normal, then I think it's a high likelihood of some rationing. And then I would also like to add to that, that rationing of power it's it's not really a hard line because I would also say that very high prices, it's also, it's rationing when you have a peak prices for the coming winter in France I think is now 20 euros per megawatt. What is it? 20,000 euros per megawatt tower. It's really high. It's 20 kroner per ki kilowatt tower. That's also a form of a, of rationing.

Richard Sverrisson, Editor-in-Chief, Montel: 30:29

And rationing. Who's in charge with rationing? Who did decrees? Who gets what? Mark

Mark Turner, Partner, Baringa: 30:34

I think, a lot of those rules, a lot of the guidelines actually still need to be written. So there are rules which are ringfence, for example, domestic consumers, et cetera. So I think it's a fair assumption that households will be a last resort in terms of rationing. Interestingly, there, there was a fascinating paper for me. IMF a month or so back where they looked at an impact of the impact of Russian gas being turned off entirely. And they looked at the. The best order of rationing in order to minimize the GDP impact of the rationing. And they ca came up with a merit order, if you will, of industrials by, by order of least impact, starting with sort of non-metallic chemicals, non-metallic elements, ceramic glass moving through to, Ferris metals. I think steel aluminum was fourth in a list of three or four. So I thought that was quite interesting on the. The sort of economically optimal way of rationing. I think the other thing they drew out that I think is really key is the impact that household demand could have on avoiding rationing elsewhere, and even quite small changes on the household side. Voluntary changes that could be invoked would be very beneficial, and I actually think there's more that governments can do in terms of informing households and end consumers What. Simple measures they can take and actually what impact that would have. Everyone's talking about, turning down the thermostat by a degree or two. But there are lots of other examples of small interventions and I personally think a public information campaign would be useful. I, I. I think people want to help but they don't necessarily know the best way of doing that. And I think elevating that would be good.

Richard Sverrisson, Editor-in-Chief, Montel: 32:24

Absolutely. The message to the public. I'm often quite struck by walking around Oslo in the evenings, how many lights are on in offices. Okay, you don't save that much, but across the country and across the continent, I think there are a few gigawatt hours to be saved. Alexander and Mark, thank you very much for joining the Weekly podcast. So listeners, you can now follow the podcast on our own Twitter account. Aply named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montelnews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye.